Manufacturing in Sweden: How competitive is Sweden as a manufacturing location?

Report, 2015

In this report we have asked the question whether it is possible, and indeed worthwhile, to sustain manufacturing in Europe. First and foremost, the macro‐economic analysis shows that manufacturing still represents an important part of a balanced economy. Sweden, like Germany and others, still feature strong contributions of their manufacturing sector to the national Gross alue Added. However, it is also clear that manufacturing fortunes differ greatly across Europe, and that the manufacturing sector is under pressure in many countries. Manufacturing’s survival in Europe thus should not be taken for granted. To further investigate what it takes to retain manufacturing in Sweden, we have interviewed leading Swedish manufacturing firms. Our findings paint a clear picture. First and foremost we find that higher labour cost is not necessarily a “killer criterion” for the locus of manufacturing as many other favourable advantages offset the labour cost advantage: skills, productivity, proximity and quality of suppliers, and others. Secondly, our findings also show how collaboration with unions and worker councils is a unique Swedish strength compared to other EU countries, while skill levels and quality of local suppliers are strengths compared to low cost regions. Interestingly though, collaboration with the Swedish government is identified as a unique weakness for Sweden, and the comparatively high failure rate of Swedish firms’ offshoring ventures stands testimony to this. Labour cost is not all that matters, but Sweden must be able to compete in total cost comparison and when understanding and utilising its unique strengths. In conclusion we argue that manufacturing still plays a crucial role in the Swedish economy in terms of Value Added, employment, and exports. Its survival however is not guaranteed. Sweden, like any other developed country, needs to actively support its manufacturing industry. Links to customers and suppliers, and government, matter more than commonly thought. In this context it is important to stress that global manufacturing is a growth sector, and at present other developing countries (e.g. BRICS) and regions are capturing most of this growth, while industrial nations see a stagnation of manufacturing GVA. Manufacturing thus is not the “sunset industry” many make it out to be. It has been, and remains, a prize worth fighting for.