Subcontracting Optimistic minority of Finnish subcontractors expect growth

Author / Editor: Eric Culp / Jürgen Schreier

In February, the Federation of Finnish Technology Industries carried out a survey of member companies that use or provide subcontracting services, asking about the effect of economic trends on subcontracting in the technology industry. One-third of subcontractors believed that their orders would grow this spring.

The survey produced a mixed bag of results, however. Responses suggested that main contractors believe the number of orders they place with subcontractors will remain at the level of the previous spring. In addition to the one-third of subcontractors, or slightly more, who thought their order books would grow, another one-quarter of them foresaw orders shrinking. One-quarter of subcontractors reported an increase in production, and half said they were operating at close to full capacity. Ten percent of respondents reported reducing production, and one-fifth said they were planning temporary layoffs.

The growth in demand for subcontracting seems to have stalled at the end of 2011. In the spring of 2011, two-thirds of respondents to a similar survey, subcontractors as well as main contractors, forecast growth.

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The level of current demand is apparent from the perception of subcontractors’ spare capacity and in the transfer of production to main contractors’ own facilities. A growing number of main contractors (41%) felt that subcontractors’ spare capacity had grown. Twenty percent of main contractors said that they had transferred production from their subcontractors’ to their own production facilities.

Earnings likely flat in 2012

Subcontractor profitability seems to be unchanged from 2011. One-quarter of subcontractors reported good profitability. More subcontractors than earlier predicted a weakening of their profitability in early 2012.

The insufficient availability of skilled labour continues. Almost one-third of subcontractors and one-fifth of main contractors reported labour shortages.

The survey was based on the situation of companies in December 2011. Results were compiled from the answers given by 73 main contractors and 110 subcontractors.

See the complete report here.