If there is one barrier to Nordic industry competing in the global market for subcontract work it is high labour costs. This is not insurmountable, says Juha Soutolahti, vice-president of Finland's Patria Aerostructures. "Our engineers are actually quite cheap - cheaper than in much of western Europe, for example Germany," he says, although "blue-collar labour costs about the same".
The cost per engineer-hour in Sweden is among the highest in the world, but development costs are at least one-third lower, due to more efficient workflow and less internal bureaucracy, says Swedish Defence Industries Association director Percurt Green. For the Gripen's total sales to date of 204 aircraft, development costs are around SKr100 billion ($13.5 billion), compared with SKr180 billion for a similar quantity of Dassault Rafale fighters or SKr300 billion for the EurofighterTyphoon, says Green.
Other Nordic industrialists feel they can compete on grounds of superior technology. Despite being cheaper in some competitions, it would be "against the Swedish mentality to produce an inferior quality product just to make a profit", says Bertil Hellstr"m, vice-president of international business development for Sweden's Ericsson Microwave Systems. All Nordic exports, from cars and furniture to mobile telephones, have a reputation for quality and durability that is to be built upon, not demolished, he says. Soutolahti says: "We have about 15% of our revenue in research and development spending. We are trying to keep up investment in R&D. When you are under great price pressure, the only way is to develop something new."
The other way past the cost problem is to pick the competitive ground carefully, according to Per Boll, managing director of SAS Component, an arm of SAS Technical Services. Five years ago, he says, Scandinavian flag carrier SAS decided to concentrate on component maintenance rather than heavy overhauls for global customers, largely because it realised that Scandinavia would never compete on prices for such labour-intensive work.
"We may be around level with Germany on wage rates, but against Lufthansa Technik's bases in eastern Europe we are double the price, and against the Philippines, we are 20 times as expensive," says Boll.
Focusing purely on component supply was a shock to the "conservative" maintenance, repair and overhaul business, he says. "But there is huge pressure on airlines to reduce prices and one way for them to do so is to outsource non-core activities, such as parts inventory," he says. And the new strategy is paying off, with external business doubling over the last two years.
Source: Flight International
