Manufacturing costs – cheap as China? part 2

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GlaxoSmithKline has announced plans to invest £500m in the UK to build a new manufacturing facility. This is the first time in the past 40 years that the company will build a factory on British soil.

As mentioned in a previous post – Cheap as China? – the economics of global production are changing and the benefits of manufacturing abroad are decreasing. Sir Andrew Witty, CEO of GlaxoSmithKline, highlighted rising costs in “low cost” markets and a low tax rate of 10%, due to the “Patent Box” tax, as the key reasons for investing in the UK.

“The competitiveness of the UK over the last three years for major investment has significantly improved,” said Witty. “Over the past 10 years we’ve seen lots of work go overseas into countries who are dealing with[up to] 13 per cent wage inflation and adverse currency dynamics, it’s not logical that this is a sustainable position.”

“You combine [improved tax competitiveness, process productivity and the deteriorating cost competitiveness abroad] and businesses have to be dynamic. This isn’t a dogma; we have to take rational decisions based on the competitive position we are in today.”

Homecoming

Faced with rising costs in outsourcing and logistics, and an increasing recognition of the costs of management and co-ordination, companies are beginning to look to Europe for manufacturing opportunities. In this context the UK, with its stable costs and competitive tax rates, represents a highly competitive option for businesses.

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