Traditional Technology and Cost-reduction As a Major Driver in Business: Can Outsourcing Relations be Redirected by Smart Manufacturing?

Traditional technologies can have an extended lifetime if companies use various cost-reducing strategies. One of these strategies employed in Western European countries in the past decades has been low-cost outsourcing in Central and Eastern Europe (CEE), mainly derived from low wages. Specifically, Czech Republic, Poland and Hungary are prime destinations for low-cost outsourcing. However, there is a trend of increase in wage levels in these countries, posing the question of how long (time-period) cost advantages can be gained in the CEE region in the future. Far distance outsourcing of manufacturing goods causes a lot of strain on transport and the environment, and in a situation of diminishing cost-advantages in CEE, the question can be posed to what extent traditional manufacturing can `return¿ to Western Europe if smart manufacturing methods are being used. This study adopts a scenario-analysis approach in which four scenarios are drawn, particularly focusing on labor cost development and other cost advantages, and on other critical factors in outsourcing like availability of low-skilled labor and productivity changes. Each scenario will be examined in terms of attractiveness for outsourcing and potential implications on decisions for (continuing) outsourcing relationships with CEE.