Ways to boost competitiveness in Europe: analysing the Engino case
There has been evidence in the last four years suggesting that many U.S. companies are bringing manufacturing back to the U.S. This growing trend is expected to boost the competitiveness of the U.S. economy and help it grow out of its debt. As Europe is currently looking for ways to boost its competitiveness as the best remedy to solve its financial problems, there is clearly a need for extensive research to investigate if similar trends take place in European companies and the extent to which such strategic moves are financially justified. Being able effectively identify financially viable capital projects will allow to channel government funding for supporting innovative SMEs with high growth potential, and thus will put the European economy on the path of recovery.
Being an academic at CIIM, a business school which is actively involved with the business sector in Cyprus, I have come across an interesting local example of a small company which in times of crisis made a very unorthodox decision of moving its manufacturing to Cyprus. The company’s name is Engino. It is an export-oriented SME producing construction toys of its own unique design. The company has been investing heavily in R&D to develop a high-quality innovative product. During 2007-2011 the company outsourced the manufacturing to China. At the end of 2011, the owner Costas Sisamos made a strategic decision of start his own manufacturing in Cyprus. The case of Engino has been noted and appreciated at international level: the case was recently published by the Business Case Journal of the Society For Case Research in the U.S.
In August 2011, the Boston Consulting Group published its first “Made in America” report, in which it concluded that China’s overwhelming manufacturing cost advantage over the U.S. is shrinking fast. Within five years, as the report said, “rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America.” The BCG recommendation was that companies should undertake a rigorous, product-by-product analysis of their global supply networks in order to carefully assess their total costs. They went on to say that for many products sold in North America, the U.S. will become a more attractive manufacturing option.
The second BCG “Made in America” report came out in March 2012. Its main conclusions were that “seven groups of industries are nearing the point at which rising costs in China could prompt more companies to shift the manufacture of many goods consumed in the U.S. back to the U.S.” This shift could create 2 to 3 million jobs, lower unemployment by 1.5 to 2 percentage points, and add around $100 bln in annual output to the U.S. economy. Most of the evidence of the “shift” has come so far from U.S. companies, with only a few examples from companies in Europe. The BCG analysts have cautiously concluded that Europe is a different story from the U.S. – yet the Engino case demonstrates the opposite. It seems that similar trends are beginning among European companies, even among SMEs, and these trends need to be noticed and supported in appropriate ways by the European governments.
The government’s role should be of strong support to capital projects of SMEs which have potential to create value in the economy. Unlike large companies, SMEs need such support, and there should be a clear framework how to identify such projects and a defined policy for appropriate support. Engino moved out of China three years ago for reasons very similar to the ones listed in the BCG reports for U.S. companies. It was a remarkably brave strategic move. Against many odds, the decision has already brought positive results proving that innovation and manufacturing have a place in Cyprus.
Engino’s case is an illustration of a type of SME which is a worthy recipient of government funds. Such investments will generate high returns in the future and will create value for European firms, thus helping the European economy to recover from the crisis. The problem of the massive debt load, which caused the current European financial crisis, is best solved via the economy growth rather than by austerity measures, which have had a limited effect so far.
CIIM is looking to gather and investigate other similar cases. In times of crisis, we should not focus only on criticising the bad practices, but should bring to attention the good practices. Engino case is the first case of a positive story of a company from Cyprus published in a prestigious international academic journal. Is it time to re-think how we project the image of Cyprus?