Manufacturing Risk Index (MRI) brings together a range of important indicators to assess the relative attractiveness amongst 45 countries as locations of production. In EMEA, Poland has assumed the position as the highest ranked country in the Baseline ranking, moving slightly ahead of the Czech Republic, which was the highest ranked EMEA location in 2021. Poland’s elevation is partly due to the lower costs of labour and electricity relative not only to Western and Northern European countries but also to some of its Eastern European neighbours such as Romania, Lithuania, Bulgaria and the Czech Republic.
“Poland’s top position as EMEA’s most attractive location for manufacturing is another confirmation of its good prospects despite challenging months ahead. A high-skilled and reliable workforce, access to first-rate logistics infrastructure, an excellent business environment, coupled with relatively low economic and energy risks as well as competitive construction costs and some of the lowest utility costs in the region all make our country an ideal location for production and manufacturing,”
- comments Damian Kołata, Partner, Head of Industrial & Logistics Agency, Cushman & Wakefield.
The Manufacturing Risk Index (MRI) assesses the relative attractiveness amongst 45 countries in EMEA, the Americas and Asia Pacific as locations of production and assists businesses in considering how their operations may be affected by current conditions. Countries are assessed based on three key areas:
- Conditions: Business environment, including the availability of talent/labour and access to markets
- Costs: Operating costs, including labour, electricity and real estate
- Risks: Political, economic and environmental
“We have reviewed risks, costs and the business environment against many criteria and indicators, but Poland was invariably ranked in the top quartile of the world’s most attractive manufacturing destinations with the lowest risk to launching operations,”
- says Damian Kołata.
According to data from the OECD, the inflow of foreign direct investment (FDI) into Poland in 2021 hit a record high of USD 24.8 billion (through close to 450 new foreign projects), ranking Poland sixth in Europe and third in the European Union for FDI inflows.
“Poland’s high position is also confirmed by the findings of C&W’s other research that have revealed that the costs of typical logistics operations in a medium-sized warehouse with an area of 10,000 sq m are over a third (34%) lower than in the Czech Republic and two thirds (62%) lower than in Germany thanks to low energy, labour and warehouse lease costs compared to other European countries,”
- adds the expert.
Key take-aways from the Manufacturing Risk Index (MRI) report
China retains the top position in the Baseline scenario ranking as it continues to enjoy significantly lower costs of labour than other major production locations. Industrial production in China has remained buoyed by newly-emerging industries such as “new energy” and “new material” products, including charging piles, wind turbines and photovoltaic cells and the production of “new energy” vehicles which has benefited from positive government support. This transition, together with the ongoing economic expansion of the Asia Pacific region and the commensurate demand for goods, will continue to support China’s manufacturing sector.
On a cost-weighted basis, the top manufacturing locations are overwhelmingly located in Asia: of the top ten locations of the MRI, eight are in Asia. China, Indonesia and India all continue to benefit not only from the plentiful supply of low-cost labour but also lower costs in electricity and real estate construction.
In Europe and the Mediterranean, Turkey and Poland have also both improved in their rankings this year, as have Morocco and Tunisia. All have enjoyed broadly stable or even slightly lower labour costs in USD terms along relatively low electricity costs. Whilst energy costs have risen in Poland, the rates are still lower than in other nearby locations such as Lithuania, Romania, Bulgaria and the Czech Republic.
When considering risk as a key location factor, China continues to top the rankings, in part due to such high scores in the business conditions and cost factors but also due to improvements in corporate and economic risk conditions. In recent years, reforms designed to relax the regulatory conditions for foreign investment in China have been implemented, signalling the country’s determination to create attractive conditions for more overseas investment.
Countries in Europe typically enjoy some of the world’s lowest geopolitical risk profiles but many are currently facing heightened risk levels, particularly economic and political, as the challenges of the regional and global dynamics impact individual countries. For some, including the Czech Republic and Poland, improvements to the countries’ capabilities in achieving sustainability targets, along with highly competitive cost profiles, have helped to bolster their positions in the rankings, despite elements of heightened economic risk.
Geopolitical conditions impacting the manufacturing sector
Following almost three years of managing risks and headwinds during and following the global COVID-19 pandemic, manufacturing and production businesses now face new and emerging challenges as well as continue to navigate longer-term difficulties.
The impact of the COVID-19 pandemic and the disruptions to production and movement of goods across the globe have highlighted the importance of well-functioning, robust supply chains. Whilst the most significant impacts of the pandemic have somewhat subsided, the global economy and businesses alike are now faced with fresh and evolving challenges. The war in Ukraine has not only impacted the availability and cost of energy and commodities but has also heightened risk levels, especially economic and political risks, as the spectre of rising costs and constrained economic activity raise social and political tensions. Beyond this, climate change and natural disaster risks continue to challenge countries’ abilities to create and maintain stable and secure environments for business growth. Lastly, and not insignificantly, labour market dynamics – particularly the availability and cost of appropriate staff – remain a key consideration for businesses when locating and operating their facilities in different jurisdictions.