Sometimes we surprise even ourselves. Unfortunately. From an Evolving Excellence post nearly thirty months ago:
Ahh… to be a world tourist. Globetrotting from country to country in search of lower direct labor costs to help offset unrecognized internal process waste cost. The first stop was Mexico, then on to Honduras or the Dominican Republic. After a while there were too many gringos there as well, so how about a nice cruise over to Asia.
China's pretty nice… lots of cheap labor… that should do just fine for a while.
Uh oh. It's only been a few years but something's going wrong. Why are labor costs shooting up? It's not tracked, but it appears training costs are going through the roof as well. What's going on?
Time to start looking for the next destination. Africa is looking pretty good. It's going to cost a lot to move the factory over there. But surely the reduced labor cost offsets moving, retraining, putting more inventory on ships, and rejiggling the supply chain.
Yes, Africa was in our sights. And so it has come to pass.
After the fall of the Berlin Wall, Japan's Sumitomo Electric Industries joined a crowd of automotive suppliers setting up low-cost plants on Europe's eastern rim. But now, Sumitomo is shifting production south of Europe—to the ancient Moroccan port of Tangier and to Bou Salem, a market town set among wheat fields in northern Tunisia. As costs rise in Eastern Europe, the company says, it's getting harder to make a profit. North Africa, by contrast, offers far lower wages and plenty of eager workers.
Sumitomo isn't the only company beating a path to the Maghreb, a swath of four developing countries along the Mediterranean's southern shore. Led by Morocco and Tunisia, the region of 84 million people is attracting serious investment—more than $30 billion over the past five years—to build everything from auto and aerospace factories to five-star resorts and call centers for multinationals.
Why? Labor cost, obviously.
The Maghreb's appeal is obvious. It's in the Continent's backyard: Tangier lies just eight miles from Spain across the Strait of Gibraltar. The region's governments are relatively stable and business-friendly. And it's cheap, with factory wages averaging $195 to $325 a month. Compare that with the average $671 monthly paid by French automaker Renault at its Dacia Logan factory in Romania.
And who's going?
Those numbers help explain why Renault is building an assembly plant in Tangier that will be one of its biggest anywhere. The factory is expected to employ 6,000 workers, and Moroccan officials say it could attract suppliers that would provide jobs for 35,000 more.
Europe's aerospace industry is just as bullish on the region. Next year, Airbus plans to open a $76 million factory in Tunisia with 1,500 workers. And the industry's suppliers already employ more than 10,000 in the Maghreb, making fuselage panels, high-pressure pipes, and much more. France's Groupe Safran, for instance, has six facilities in the Maghreb employing almost 1,400 people. Inside its airy, brightly lit factory near the Casablanca airport, women in white jackets painstakingly weave electric wires into cables destined for Boeing and Airbus jets.
There are risks. But the narrow-minded see the short term reward.
Despite such uncertainties, the Maghreb looks relatively well positioned to ride out the economic storm. Unlike Eastern Europe, it didn't gorge on foreign debt. And while the U.N. says overseas investment in the Maghreb dropped by some 5% last year, that's not bad compared with the 21% decline in the Middle East. "We are seeing some projects delayed or scaled back," says James Morrow, Citigroup's chief for Morocco, Tunisia, and Libya. But, Morrow says, "it's the next logical location for companies that want to diversify their exposure."
"Diversify their exposure." Yes, sure. Instead of focusing on improving internal business fundamentals and efficiency. With so many companies now headed to Africa after stints in Mexico, Asia, India, and elsewhere… and that demand then raising the labor costs they sought to minimize.
Where next after Africa? I guess Antarctica is wide open.