At the Manufacturing Industry Evening on 13 March, ABN AMRO, in collaboration with the organisers, presented a study into the trends in turnover and profit in 2018. Although Dutch industry achieved a substantial rise in turnover during the economic boom of 2018, this did not lead to higher profit margins for nearly all companies. The main cause of the decline in profit margins is the rise in staff costs (62 per cent). The report shows that SMEs which do manage to maintain their profit margins are more likely to invest in staff training and development, which has a positive effect on labour productivity. This enables them to produce more without incurring significantly higher labour costs. The report was presented to Mustafa Amhaouch, Member of the House of Representatives (CDA), and Pieter Waasdorp, Director of Entrepreneurship at the Ministry of Economic Affairs and Climate Policy.
Higher staff costs squeeze profit margins at over a third of companies
Although the Dutch manufacturing industry achieved a substantial increase in turnover during the 2018 boom, this has by no means led to higher profit margins at all companies. For instance, 36 per cent of SMEs failed to maintain their profit margin. The main cause of the deterioration in the profit margin was increased personnel costs (62 per cent). Many entrepreneurs needed more staff to meet the extra demand, which, however, became much more expensive. Wage growth for permanent staff was not too bad at 2.4 per cent, but temporary workers became as much as 6.2 per cent more expensive, according to Statistics Netherlands (CBS). Staff costs also rose due to overtime, increased absenteeism and staff cancellations. Of the companies that saw margins worsen, more than one in five (22 per cent) cited excessive pressure on staff as the cause. This is according to a survey commissioned by ABN AMRO in collaboration with Koninklijke Metaalunie, FPT-VIMAG, Federatie NRK and the Jaarbeurs on developments in turnover and profit in 2018. 149 companies participated in the survey. The results were presented yesterday evening during the Evening of the Manufacturing Industry at the Jaarbeurs in Utrecht.
Higher labour productivity leads to healthy profit margins
The report shows that SMEs that do maintain their profit margin are investing more often in training and educating employees, which has a positive effect on labour productivity. This allows them to produce more without much higher personnel costs. It also appears that companies that have part of their production done in low-wage countries are better able to maintain their profit margins in boom times. This is probably because they can have labour-intensive work done at lower costs. Companies that offer their customers services in addition to products, such as repairs and training on how to use their product, were also more likely to maintain profit margins than those that do not.
Robotisation and well-trained staff crucial for higher productivity
For a healthy profit margin, ABN AMRO says it is crucial to invest in higher labour productivity. "For this, not only robotisation and digitalisation are important, but also training employees, for example to work efficiently with this new technology," says David Kemps, Sector Banker Industry at ABN AMRO. "In addition, industrial companies should not just produce, but also offer service. There is a good profit to be made on providing training on how to use the product. This also leads to higher customer satisfaction. Another possible service is 'Product-as-a-Service'. That means paying for the use instead of owning the product. This can give manufacturing companies a steady stream of revenue and a better profit margin."
