1. if the product portfolio is to be more scalable
Those who want to grow with their products in terms of expansion need an easily scalable business model that is not hampered by local restrictions.
Grown structures are often characterized by the fact that product development, testing, production and distribution are carried out from one plant. Often originating from a prototype laboratory, these structures or production factors reach their limits and are difficult to scale. Expanding the product portfolio from an existing production facility can become a challenge when customer demand increases - especially if, in addition to structural problems, there are additional restrictions in terms of personnel or space requirements.
In the case of large-scale production, companies cannot avoid shifting parts of their corporate culture, networks, processes or system expertise. This is where software or brainware that can be expressed in more than just ones and zeros counts. This means that a better-than-original copy can often be set up in the target country, eliminating the production restrictions at the previous plant location. Another advantage is the lower manufacturing costs usually associated with a modern production facility, which help to amortize the investment associated with the establishment of the site more quickly.
2. If you want to catch up with market competitors
Companies and businesses vying for customer favour sometimes find that competitors want to open a new plant and thus make a leap forward. If the distance of competitors to local customers has become shorter, this can be a good reason to follow suit - in the truest sense of the word - and relocate production accordingly.
Experience also shows that companies can generate further growth opportunities at new production sites that were previously unknown and can only be recognized and exploited through market development and successful local networking. Establishing an additional production pillar close to the customer therefore offers anchoring advantages and avoids potential competitive disadvantages.
In addition, country-specific products can often be manufactured and marketed more cost-effectively in the respective target countries. At the same time, delivery capability and delivery reliability can be increased thanks to shorter logistics routes to the customer. At the same time, relocating production abroad can reduce the risks associated with long supply chains with many suppliers.
3. If you want to take advantage of tax benefits
Why are many internet companies such as Meta and Alphabet based in Ireland? They feel culturally connected there and have no language issues, but also want to take advantage of the cost benefits that Ireland offers, such as lower payroll and income taxes. Other countries in the European Union cannot keep up, especially as the complexity and transparency of their decision-making processes are not sufficiently competitive. Structural details such as taxes, depreciation periods and wage costs play a comparatively minor role. Anyone relocating from Germany to Switzerland has to pay significantly less tax when handing over the company to a successor. One example is the significantly lower inheritance tax.
Furthermore, there are also countries in which the investment and location conditions are changing positively, for example by reducing the complexity of bureaucracy and similar obstacles, enabling companies to locate in duty-free zones or offering further investment incentives. Fiscal motives, i.e. state-sponsored programs that have a positive impact on returns, can be one of the more important factors for relocating production abroad.
4. If you are struggling with high energy costs
Germany has a pioneering role in some respects. However, companies and businesses are unfortunately not always able to implement the often exemplary legislation with regard to environmental aspects in a timely manner or sometimes not at all without losing their position in international competition. Examples include aluminum producers or other energy-intensive manufacturers of basic materials who are struggling with the massive increase in energy costs due to the EEG levy.
Continuously increasing environmental protection requirements also represent stress factors for individual companies, businesses or entire industries. In many cases, increases in operating costs caused by high climate protection standards cannot be passed on to customers, as competitors in regions with lower requirements can produce at lower costs.
The company is then faced with a major dilemma due to price pressure - especially if the disadvantages cannot be compensated for in any other way, such as through quality advantages of its own product. In order not to lose the customer, they consider relocating production to a target country with less stringent environmental regulations.
5. When you need access to expertise
In the past, products were often developed and localized with the cheapest labour costs in mind. However, exciting software projects can now often be implemented more quickly than in Germany or Europe due to the demographics and the number of well-qualified or highly qualified IT specialists available abroad - for example in certain parts of Eastern Europe. The buzzwords here are AI and IT. Growth opportunities can often be realized faster in an IT cluster in another part of the world.
However, precisely because of the possibility of virtual collaboration in the software sector - accelerated by the pandemic - there is little to be said for relocating production abroad and much to be said for cross-border collaboration.
And yet both remain an opportunity to increase returns.
