Relocation of Production

by Business Case Studies on Tuesday 17th April, 2007

In the news … Relocation of Production

By Guest Writer Dominic Wakeford (Year 12 Student)

Burberry has closed its clothing factory in the Rhondda Valley, Wales – a move that has highlighted the increased costs of production in Britain. The decision, first announced in September 2006, is set to cost 300 workers their jobs. The company is to relocate manufacture of its trademark polo-shirts to China where they can be produced at a fraction of the current price (BBC, 27th February 2007).

In the Times 100 theory section on the location of production states that 'production activity should be located where a firm can be most productive, and yield the highest revenues per unit of investment'. Unfortunately for the Burberry workers, the Rhondda Valley is no longer suitable for this purpose. The company, which describes itself as a 'luxury brand with a distinctive British sensibility' claims that the manufacturing cost of each individual polo-shirt in Wales is £11, compared to a potential £4 in China (Observer Magazine, pg. 37, 25th March 2007).  Each year the factory is kept open Burberry argues they are set to lose £2 million profit – equating to 2.38% of their annual earnings.

Of course Burberry is not the first company to cull British workers in favour of cheaper foreign labour. Doc Martens footwear for instance, famously announced in October 2002 that due to escalating costs they were relocating to China, a decision that caused outrage in the national press (BBC, 24th October 2002). Sir James Dyson also had to defend his much-maligned actions in moving production of his vacuum cleaners to Malaysia in the same year, thereby cutting costs by 22% (BBC, 5th February 2002).

Sources:

Burberry defends factory closure – BBC News 27 February 2007

http://www.thetimes100.co.uk/theory/theory.php?tID=209

The Observer Magazine (print edition), 25 March 2007, p36-43

Just how cheap is Chinese labour? – Business Week 2 December 2004

Dr Martens moves to China – BBC News 24 October 2002

Dyson to move to Far East – BBC News 5 February 2002

 Potential Study Question:

The web site www.keepburberrybritish.com reports the campaign to keep manufacture of this brand in Britain. Sadly the campaign failed, however there is”possibility of a new venture with Burberry, Harrod's, and designers' sample production, which could create some new jobs”. Why might this smaller scale production be more viable in the UK?

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