Why do cash-strapped Electronics manufacturers in UK go to expensive areas?

[ocset]

Hello,
My company makes outdoor, offline led lighting products.  The company started in 2008. At this time, they actually bought  factory premises in Guildford Surrey.
The company has a massive policy of cost saving. Every penny is scrutinised. They say its because the lighting market is totally saturated with products from huge corporations, as well as from the Far East. –Therefore they have to save money. Whenever a switch mode design is put before them…..they say we wouldn’t  be able to forward it as it wouldn’t be able to compete on cost  with the huge competitors who are big corporations with ability to price cut us out of the market. When you submit an order list for electronic components…they scrutinise every resistor ordered…..once I  added a £1.40 pair of sidecutters in to a large  order because mine had gone missing….and the boss found  it and went round the whole place until the old pair were  found….saving £1.20.
Given this ethos of saving money and price cutting….which happens in all UK lighting manufacturers….why  do these companies start up in the South of UK?…where industrial premises are at least four times as expensive as premises in the North if UK? Why does the money spent on the premises never seem to matter?

[nctnico]

Buildings don't depreciate so much and usually the value even increases. This will be great for the owners when (not if) the company you work at goes into bankcrupty. If I where you I'd look for a different job at a company which operates in a healthy market.

[sokoloff]

Companies are started by people and those people aren’t completely rational robots.
If I founded a company, it would probably be founded in Cambridge or the immediately surrounding area, because I like where I live. I doubt it’s altogether different for many companies. They get started in an acceptable location and then each incremental expansion needs to consider “are we better off just staying in one location, even if some functions could be done better someplace else?”
Once you consider a second location, you also consider off-shore or outsource, as well, so it’s not clear that north UK is going to win there either. (I have no idea, and no disrespect intended at all.)

[dmills]

Buildings are an asset, and you go where the customers are (And where the talent is, I have tried hiring EE types in Yorkshire, nightmare!), but there is also often history and sunk cost fallacy in play.

Now I think your boss is an idiot (Having identified that the market is not one where small firms should play he is going for it anyway and nickel and diming you to death to 'compensate'), but whatever.

Regards, Dan.

[coppice]

If they bought a property in Surrey in 2008, that will have been the very best part of their original investment. Renting in high value areas is a drain. Buying in appreciating areas is good for small companies, assuming they have the up front cash. It can work out badly for some big companies, though. They can end up with so much of their value in the land they stand on, that if they have a bad year and their shares fall they get bought for the land and stripped. I've seen at least one major company get close to that, who sold off all their property when they recovered, and leased it back.

As a general point about choosing locations, you have to locate where the people you want to employ live. Its easy to locate a simple assembly plant pretty much anywhere. If you don't need much skill you can always find people, and you only have to worry about the logistics supply lines. However, you're most likely to find the best fit is people in East Asia, and you put your assembly plant there. In Europe and America companies doing similar things cluster, so they are close to the people and services they need, and that's a growing trend in Asia. Globally the most extreme examples of this are probably Silicon Valley and Shenzhen. Both those places have become very expensive to be in, yet few people move out. Those who try to move out, end up moving back, because its so much easier to do business close to everyone else.

[Zero999]

Are they manufacturing in the UK? If so, then that's crazy, unless they're going for very small volume, with quick turn around times.

The main reason for the location is because it's near the people with the right skills for the job, with good links to London.

I agree that a small company choosing SMPS lighting PSUs is a silly idea, especially if they're trying to compete on cost.

[james_s]

I would question the business sense of anyone who spends that much time searching for a £1.40 tool, surely their time is worth more than that? No sense in looking for rational reasons behind irrational actions. There's an old saying "penny wise and pound foolish" that comes to mind here.

[mikeselectricstuff]

I would question the business sense of anyone who spends that much time searching for a £1.40 tool, surely their time is worth more than that?

..or even looking at.a £1.40 item in an order.

[nctnico]

I would question the business sense of anyone who spends that much time searching for a £1.40 tool, surely their time is worth more than that?

..or even looking at.a £1.40 item in an order.

Agreed but I've heard similar stories about bosses doing silly stuff like this. One of the stories from a repair technician I once worked with: in a former job he always destroyed the broken parts he took from a machine. In the evening the boss went through the trash and he put every part which looked OK back into the warehouse with new parts.

[rstofer]

Infrastructure...  Having a tech business near other tech businesses produces cross-pollination.  All companies are hiring or raiding employees from each other.  There will be more qualified people in the area.

The buildings in preferred areas are more expensive but it's a cost of doing business.  The employees need to want to work in the building.  It has to have amenities like a cafeteria, break rooms and other features tech employees tend to want.

Employees come and employees go, some stay longer than others.  If you want them to stay, you need to offer a better package than the company next door.  When I started working in Silicon Valley back in the mid '70s, a tech employee could get a new job by turning in the wrong driveway one morning.  "Hey, I work at XX and now I want to work for you!".  To which the reply was always "Welcome Aboard!".

Nobody want to work in a run down building in the middle of nowhere.  Public transportation may be a consideration.

[tooki]

Agreed but I've heard similar stories about bosses doing silly stuff like this. One of the stories from a repair technician I once worked with: in a former job he always destroyed the broken parts he took from a machine. In the evening the boss went through the trash and he put every part which looked OK back into the warehouse with new parts.

For fuck’s sake, how do you not realize that the labor to diagnose or install a bad part can exceed the cost of the part many times over? ::facepalm:: (Imagine if this were automobile water pumps...)

(Just to be clear, you’re saying that because the boss fished stuff out of the trash, the tech was forced to make bad parts look obviously faulty just to stop him?)

[chris_leyson]

One of the stories from a repair technician I once worked with: in a former job he always destroyed the broken parts he took from a machine

  :-+Good on him I think he had the right attitude given the circumstances. What the hell was he repairing ?

[4CX35000]

I would question the business sense of anyone who spends that much time searching for a £1.40 tool, surely their time is worth more than that?

..or even looking at.a £1.40 item in an order.

My experience of working under many managers and directors is 'Penny wise, pound stupid'.

[nctnico]

Agreed but I've heard similar stories about bosses doing silly stuff like this. One of the stories from a repair technician I once worked with: in a former job he always destroyed the broken parts he took from a machine. In the evening the boss went through the trash and he put every part which looked OK back into the warehouse with new parts.

For fuck’s sake, how do you not realize that the labor to diagnose or install a bad part can exceed the cost of the part many times over? ::facepalm:: (Imagine if this were automobile water pumps...)

(Just to be clear, you’re saying that because the boss fished stuff out of the trash, the tech was forced to make bad parts look obviously faulty just to stop him?)

Yes. But in my experience quite a few people don't have a clear view on labour costs. Usually because they never learned to look at time as being a cost factor.

@chris_leyson: IIRC he was repairing coffee machines for office use.

[trys]

Electronics companies are similar to pharmaceutical companies, or more specifically "secondary pharmaceutical" (they process to the final product, ie pills etc). I've experience in the latter.

The infrastructure is surprisingly similar. "Clean Rooms", tight temperature control, HVAC, good power supply redundancy, environmental protection, fire control systems, packaging systems to name but a few.  Oh, and bright motivated people working in the environment.

Very often companies with those requirements will be attracted to "science park" type environments where some of the workforce requirements are met, supplier and support companies are within an accepted downtime,  and the power redundancy is adequate. Oh, and very importantly, that there is almost a guaranteed planning consent by the council.

There are many companies, however, both now and historically that buck this trend and do (or did) very well indeed. If for example, you go to an area that have a very skilled workforce in an industry which has since gone by the wayside with good infrastructure (such as the steel or coal industries for example), or simply pick a great area of talent. A great example of this is Sony in Bridgend (Pencoed), and historically Cadburys in Bournville.

Trys