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Cost of Doing Business: Manufacturing, Transport & Logistics

LogisticsManufacturingTransport

Experts predict that up to $100 billion will be spent on autonomous driving technology in the coming decade. The 3D printing market is expected to reach $35.6 billion by 2024. And it has been estimated that there is $1.5 trillion worth of opportunities in logistics as a result of digital disruption by 2025.

What do these three points have in common? They all suggest that the manufacturing, transport and logistics sectors will cease to exist as we know it and with it goes the current freight and transport costs. Yet, up until now, the disruption has focussed on new entrants to the market, like Amazon. Or more efficient use of existing resources, like Uber and its ride-sharing model. Although transformative, these changes have not fundamentally shifted the economic model as we recognise it today. Traditional transport and freight expenses still play a major factor in the total cost of doing business, at least for the near future.

The new technologies associated with the fourth industrial revolution, however, will enable unprecedented levels of reform that could render obsolete what we currently view as cutting-edge. Disintermediating disruption if you like. When this shift takes place, it will change logistics management and potentially the cost of doing business. Until that time, the current transport expenses will continue to affect businesses. Still, the fundamentals of manufacturing and transport remain important to businesses.

Don’t forget the fundamentals

But, and it is a very sizeable caveat, we should not lose sight of what remains very important to the manufacturing, transport and logistics sectors. Regardless of technology, there are a number of core factors that will not change for the foreseeable future. For example, hard and soft infrastructure must be integrated. Traditional freight through ports, roads and airports must combine with digitised processes, data analytics and an open-minded commitment to change. Getting this right will allow technology to flourish for years to come. Combining the ever-improving technology with these traditional freight paths can create the environment the manufacturing and logistics industries are seeking.

However, given profit margins can be thin, the most important factor is usually cost. Nowhere is this more important than in the Middle East, a region that does not necessarily have the manufacturing, transport and logistics heritage of other regions like North America. As part of our economic diversification plans, designing, making and distributing our own goods is clearly a priority. But starting from scratch and competing against highly competitive, high and low value manufacturing centres from around the world will not be easy. We need to look for all the advantages we can find to help reduce the cost of doing business in the Middle East. One of our main advantages is focusing on the fundamentals of the traditional transport costings and the forward-looking environment in Bahrain.

What do we mean by cost?

There are many factors that go into defining the cost of an end product. And many factors that go into defining baseline costs that form a large percentage of that price. Transport and logistics can be one of those large chunks of cost of doing business, given the products have to get to the consumer. Yet, substantial savings can be made by focusing on the fundamentals and doing business in Bahrain. According to a recent KPMG report, it can be 43% cheaper for logistic companies to do business in Bahrain than other GCC countries. For companies that meet Bahrain’s tenancy requirements, they can also enjoy low registration and annual licence renewal costs, exemption from foreign tax and 100% foreign ownership. These benefits are all ways to reduce logistic expenses and improve the total cost of business.

Equally, Bahrain is highly competitive for manufacturing companies, which helps create a growing centre for both the manufacturing and logistics industries. Taking Bahrain International Investment Park as an example, firms that operate there can benefit from a 49% cost advantage compared to similar jurisdictions in the region. Low occupancy prices combine with a cost-effective, but highly skilled workforce to form a very attractive offer for overseas investors. No wonder global brands like Mondelez, Arla and Kimberly-Clark have chosen Bahrain as centres of manufacturing excellence.

Bahrain provides a competitive and beneficial business atmosphere that also includes those additional benefits for logistics and transport costings. For companies looking to reduce the annual cost of doing business in the modern world, Bahrain offers an environment that can improve logistics expenses to save companies essential time and money. This is just one of the many reasons why manufacturing, transport, and logistics services have chosen to establish a presence in Bahrain.

Disruption can only get us so far

Technology is the future. With the rapid growth in technology, the logistics expenses and cost of business are going to change. But, as Bahrain is demonstrating, one must get the basics right to create an agile, flexible and forward-looking commercial environment, before the benefits of innovation can take hold. Then following these changes in innovation, the focus will be on  integrating new technology services with the current fundamentals. As highlighted by the KPMG reports, to be competitive, many factors have to be assimilated into an overall business package. This has to be done right, because if done wrong, the manufacturing, transport and logistics sector will move elsewhere, to countries that offer an ease of doing business that the industries of tomorrow require as much as the industries of today.