Globalisation raises the demands on flexibility Globalisation means ”the growing mutual dependence between countries around the world through the increasing volumes and amounts of cross-border transactions in goods, services and capital flows”.1 This process has intensified in recent years, partly reflected in a sharp pick-up in world trade, an even faster increase in direct investment and a very steep rise in global equity and currency trade. Globalisation has given rise to rapid structural change, resulting in jobs being shed in certain sectors or being relocated to countries with lower production costs. Sweden has, for a long time, experienced fast structural change, which contributed to the strong economic performance in the 1990s. Less than 100 years ago, around half of Sweden’s employed worked in agriculture and forestry; today, that figure is only 2 per cent. Over the same period, the proportion of the employed in the services sector has risen from roughly 20 per cent to 75 per cent, at the same time as the proportion in manufacturing increased at first from about 30 per cent to just over 40 per cent and then fell to 20 per cent. Among other things, we saw during the 1960s and 1970s that large parts of Swedish manufacturing, in the shape of the textile and shipbuilding industries, were outsourced from Sweden.
In Switzerland and the UK, where this trend has been going on the longest, 30-40 per cent of the shops’ products are private labels.4 Sweden has long been one of the countries with the lowest share of private labels, around 10 per cent. According to a limited survey by the Swedish Competition Authority of typical low-price goods, the prices of supplier brands have developed in line with the CPI while the prices of private labels have fallen sharply. Increased competition and lower prices Food prices in the CPI have dropped more or less since the start of last year. Tougher competition increases the pressure on food retailers to cut prices in order to keep customers, even though other factors, such as service and quality, are important to consumers in their choice of shop. Lower prices are made possible by reduced profit margins, lower taxes or lower costs resulting from, for instance, lower wages, higher productivity or a more limited product range. VAT rates in the Swedish non-durables sector have not changed during the current decade. However, wage costs have increased at a slower rate, which has led to lower unit labour costs in the wholesale and retail markets, despite a decline in productivity growth in recent years. Moreover, companies' profit margins have continued to narrow. So it seems that the stiffer competition has contributed to lower food prices primarily through smaller profit margins and low wage increases. How much lower can Swedish food prices go?