The difference in the cost of labour between the UK and emerging economies such as China, India and the Philippines is getting smaller and could close even further by 2030. These changes could impact the attractiveness and behaviours of different countries in the global business arena. So as their relative wage levels rise, economies such as China, Poland, Turkey, Mexico and South Africa, will become more attractive as consumer markets and less important as a low cost production locations.
Countries such as India and the Philippines could be more attractive manufacturing locations due to their continued relatively low wage levels compared to China. But they must provide the right institutional environments and improve their transport and energy infrastructure to make sure they’re attractive locations for businesses in the longer term.
Changing the shape of business
These trends will have a number of potential implications for business strategies. Companies will need to reconsider how they resource their operations and where their global workforce is located. UK firms must decide if they want to be located in the lowest cost areas such as Asia, or if they’d prefer to be in areas such as Eastern Europe where wages aren’t as low, but they are geographically and culturally closer to the UK. ’Onshoring’ may become a more attractive option for UK businesses as it has for some US companies in recent years.
Companies planning for this today will find themselves with significant advantages, particularly in terms of people costs.