Why Lithuania's economy is destroyed: Germans disappointed after moving production to Eastern Europe - costs grow faster than productivity

German companies have become disappointed with the relocation of production to Central and Eastern Europe, as rapidly growing labor costs exceed productivity growth.

 

Strategy& study shows that due to the declining cost advantage and intensive robotization in Asia, simple relocation of production no longer works, writes Finance.si.

 

Key trends:

 

Cost-benefit mismatch: While Eastern Europe used to attract low costs, now labor costs are growing faster than productivity.

 

Asia's comeback: Thanks to advanced robotization, Asia is once again becoming a more competitive manufacturing location than Eastern Europe.

 

End of business model: Strategy& (PwC Group) indicates that the era when production could simply be relocated without fundamental changes is over.

 

Future prospects: Companies must review their strategies, as geographical proximity no longer covers all costs.

 

This trend shows that German industry needs to transform its business models, and not just look for cheaper labor in the region.

 

The main Lithuanian business news outlet “Verslo žinios” is pretending to bemoan the situation in Lithuania, pressing to hold back the increase in wages in Lithuania against the backdrop of already pitiful prices:

 

“Over the past decade, for many German companies, moving production to neighboring Central and Eastern European countries has been a logical step due to lower costs, geographical proximity and shorter delivery times, writes the German publication “Wirtschaftswoche”. However, a recent study by the consulting firm “Strategy&”, operating in the global consulting giant “PwC” group, shows that the era when production could simply be moved without fundamental changes to the business model is over, writes the Slovenian financial publication Finance.si.

 

Cost advantage is rapidly disappearing

 

The main argument for nearshoring, i.e. moving activities to nearby countries with a labor cost advantage, is rapidly disappearing.

 

According to the results of the study, labor costs in Central and Eastern Europe are growing 3.5 times faster than productivity. As a result, the expected savings are often not achieved.”

 

If the prices of our products are much higher than the prices of Chinese robot products, then no one needs our products on the world market. When no one buys, those dreamed-of savings also disappear.