Europe: an attractive market with complex supply chains

Fifth edition of the european SCM Map Europe

Whereas other regions in the world are struggling, Europe is delivering sustained – albeit modest – economic growth. According to the World Economic Forum, no less than six of the world’s top 10 most competitive countries are European. As a result, Europe continues to be an interesting market. However, it is also one of complex supply chains full of differences in tax rates and production and distribution costs. This fifth consecutive edition of the SCM Map of Europe once again provides an overview of the most relevant supply chain-related information.

By Martijn Lofvers

Despite the existence of the European Union, Europe remains the world’s most complex continent when it comes to supply chains due to its many languages and cultures, its wide range of legislative differences and its fragmented and decentralised market with a high number of relatively small towns and cities. That’s why Supply Chain Media has developed the SCM Map of Europe for the fifth consecutive year.

Importance of Blue Banana

For companies, the most important consideration is where the majority of consumers – the end users of their goods and services – live. Therefore, urbanisation in Europe – a demographic representation of where the highest numbers of citizen live and work – forms the basis of the map. The most important urban corridor in Europe is the so-called ‘Blue Banana’ totalling approximately 110 million inhabitants. The corridor stretches from the northwest of England to northern Italy via the Benelux region, the Ruhr area, the Rhine region and southern Germany, Switzerland and the Tirol. The Blue Banana represents the key sales market for many brands in Europe. The map indicates the actual and the predicted growth – according to a forecast by the World Bank – of the gross domestic product (GDP) of fast-growing countries.

Over the past five years, Turkey was the fastest-growing country in Europe from an economic perspective, followed by Poland. By 2020 Turkey is no longer expected to be one of the world’s fastest-growing economies, leaving Poland as the only European country on the list. Of the Blue Banana countries, only Luxembourg made it into the top 10 of the fastest-growing countries in 2016. According to the World Economic Forum, with the exception of Italy, the top 10 most competitive countries of Europe features all the countries in the Blue Banana, meaning that this region continues to be Europe’s most important sales area. The British economy has performed noticeably well since the Brexit vote, but in the longer term leaving the EU is expected to have a negative impact on the United Kingdom, including on the location policy of new companies.

New factory openings

The supply chain map of Europe shows the key European production facilities of the world’s top 100 brands. The logos illustrate the manufacturers’ choices about whether or not to produce close to their sales markets. Since last year, the map also includes the hourly unit manufacturing costs for the individual European countries. Besides productivity, this is a key decisive factor in the choice of production location. The upswing in the European economy is clearly reflected in the construction of new factories by major brand names in Europe such as Apple, Coca-Cola, Mercedes, Adidas, PepsiCo, Ikea and Nestlé.

Apart from the production facilities, the distribution centres are essential in terms of reaching business customers and consumers, so the map of Europe displays the existing, emerging and potential distribution hubs. Logically enough, many existing distribution hubs are located in the Blue Banana corridor. According to logistics real estate specialists, the Netherlands – and in particular the southern part of the country – is and will continue to be a favoured location. When companies are choosing the site for a distribution centre, decisive factors include not only the geographic location and motorway links but also the rental price per square metre.

A second important feature to have been added in this version of the SCM Map of Europe is the World Bank’s Logistics Performance Index (LPI). The LPI is an interactive benchmarking tool which has been developed to help countries identify the challenges which are standing in the way of improvements to logistics and trade flows. This index rates Germany as the best in the world once again in 2016 in terms of customs handling, infrastructure, international shipments, competence of logistics service providers, tracking & tracing opportunities and, last but not least, on-time deliveries. Luxembourg is ranked second, followed by Sweden. The Netherlands has dropped from second to fourth place in this global logistics ranking.

Tax reductions and political risks

In addition to the distance to the sales market, another important consideration for foreign companies when deciding whether to establish a base in a certain country is the corporate income tax. At 33.33 percent, France has the highest rate in Europe. This year, Denmark has reduced its corporate income tax rate from 23.5 percent to 22 percent, Norway from 27 percent to 25 percent and Spain from 28 percent to 25 percent.

According to the risk experts at Aon, Turkey and Ukraine are the only European countries to be at high risk of terrorist attacks in 2016 while France and Greece are at medium risk. Perhaps notably in view of the recent events following the failed coup, Turkey does not score highly in terms of the risk of political violence. In addition to high labour costs and high corporate income tax, France also has Europe’s highest number of days lost through strikes, which discourages international brand manufacturers from locating their factories and distribution centres there.

Download: SCM Map Europe 2016-2017

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