Lunch Lesson 11 - Production options

The Hungarian factories were struggling to find work

Rob Pittam reports from Hungary

Sometimes it seems that the biggest export from the UK is the jobs of thousands of British workers.

The last 10 years have seen hundreds of factories close and tens of thousands of redundancies across the country.

Companies in some of our oldest industries have found themselves unable to compete with the cheap labour costs of Eastern Europe and the Far East.

New technology has meant that workers in what were regarded as Third World countries can easily match the standards of more established parts of the world.

British manufacturers face two options; to move upmarket and find a specialist niche, or to move production abroad and benefit from the reduced labour costs to keep their companies going.

Redundancies

That, of course, means closing down factories at home and has led to large-scale redundancies in many parts of the UK.

Working Lunch has followed an entrepreneur who has done exactly that.

In the end you have to think about keeping your company going and this was the only way we could do that.

Simon Berwin

Simon Berwin of Berwin and Berwin Suits runs a family business that began in Leeds more than 100 years ago.

The company is Britain's biggest suit-maker, but it no longer makes its suits in Britain.

Four years ago Simon was approached by a Hungarian textile company.

The firm had four factories across the country and huge potential.

But antiquated machinery and old fashioned production methods meant it was struggling to win orders.

Simon was offered the firm for nothing.

Workforce

He took it over and moved all his production to Hungary.

In one move he acquired a workforce of 1,700 and the ability to produce up to 13,000 suits a week.

Factories in England stand empty

But it meant closing factories in the north of England with the loss of 600 jobs.

The company has retained its headquarters in Leeds, where its design work is carried out along with administration.

But most of its factories are now empty and the vast floors at the Leeds HQ are given over to warehousing.

Back in Hungary, Simon's new workforce are turning out suits for stores like Next, Moss Bros and Austin Reed, as well as clothes under the company's own labels of Daniel Hechter and Ben Sherman.

Quality improved

Simon says that quality has actually improved.

"When we were producing in Yorkshire we were always trying to keep our costs down and the quality of material might not have been so good," he explains.

Labour costs are much lower

"Now production costs are no longer so important and we can afford to spend more money on other aspects like the quality of the garment or more expensive design work."

It's easy to see how the savings are made. The average wage of a machinist in Yorkshire was around £200 a week, whereas in Hungary it's just £40.

Simon says moving out of the UK was a difficult decision and he blames much of it on the lack of government support for manufacturing.

Government 'useless'

"I held on until the bitter end; I even served on committees trying to work out how to help British manufacturing.

"But the government was completely, completely useless.

"In the end you have to think about keeping your company going and this was the only way we could do that."

The search is on for even cheaper suits

Now the company is firmly established in Hungary.

But the search for the cheapest labour costs is a relentless global race.

Already Simon is looking even further afield for new factories.

His company executives are travelling to countries like Romania and Russia to see if they too can supply cheaper suits.

I was probably the last to turn off the lights in England, but I certainly won't be the last to turn off the lights in Hungary.

Simon Berwin

And unlike in the UK, Simon feels no loyalty to keeping production going in Hungary.

"I was probably the last to turn off the lights in England, but I certainly won't be the last to turn off the lights in Hungary."

The Hungarian Government is well aware of the problem.

Wage demands

Companies move into the country because its workforce is cheap.

But more jobs mean more prosperity and inevitably, higher wage demands from the workers.

Once that happens, the industrialists are off again.

It's hoped workers will develop new skils

Andras Kiss-Dozsai from the Hungarian Investment and Trade Development Agency says: "This is a process we can't avoid. It's happened in the UK and it will happen in Hungary too eventually.

"When our labour costs become too high, the high volume manufacturers will go elsewhere.

"But before that happens they will have brought new management skills to Hungary and new equipment.

"We think many of them will leave their headquarters here and keep their research and development in the country."

The Hungarians hope that the presence of western companies like Simon's will build up their infrastructure and make their economy stronger and more sophisticated.

They know that in a few years' time the manufacturers may be off again and they too will experience the huge redundancies seen in the UK.

But for the sake of developing their economy, they believe it is a price well worth paying.