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

Abstract. 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. We also briefly reflect on potentials of ‘smart ’ manufacturing in the Netherlands