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Reshoring of EU manufacturing

Reshoring of EU manufacturing
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Rising costs in formerly low-cost countries and the need for jobs in developed countries has recently brought reshoring – bringing back manufacturing – to the fore.

It would reverse the significant offshoring of EU production to low-cost countries, which occurred from the 1980s through to the 2000s. China was the main destination, though its mass attraction to enterprises now appears to have largely run its course and there does not appear to be any other “new China” on the horizon.

“Total landed cost” is a key measure for the manufacturing-sourcing strategy. It includes labour cost, which has recently been rising rapidly in China in real terms. Transport costs are also significantly higher, making shipping from Asia disadvantageous. Other elements are the higher inventory levels needed, and issues with product quality and intellectual property rights.

However, so far there is little evidence of reshoring from China, despite rising costs, labour discontent and a government less friendly towards foreign enterprises. Indeed significant mass returns of the manufacturing jobs that left developed countries from the 1980s onwards appear unlikely. This is because of technological / management changes in production and a re-balancing of the centres of world GDP.

Changes in production processes mean that a lot less manpower is needed for each unit made and they are produced via global value chains, often seeking the lowest cost anywhere in the world for each of the many parts in the chain. Furthermore, a greater proportion of world GDP is now outside the EU and is fulfilled via local production close to the consumer. China now also has significant manufacturing skills and competence and its own will to retain this successful sector.

Thus though reshoring may occur it most probably will not result in a return to the previous position, employing large numbers in manufacturing and a large export base.

To read the whole EPRS Briefing click here

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