Ways to boost com­pet­i­tive­ness in Europe: analysing the Engino case

Financial Mirror (Cyprus) - - FRONT PAGE -

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?

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