By Knut Alicke, Kai Hoberg and Julien Mauhourat ·
July 7, 2022
For the last five years, concepts such as reshoring, nearshoring or China+1 (see sidebar) have been propagating a stronger regionalization of industrial production. Instead of confining global production to Asia, production should take place in (or close to) the market with regional supply chains. The aim for many managers and politicians is resilient local production at low cost with short delivery times and minimum CO2 emissions.
Numerous companies in Europe and North America from very different industries are following this trend: For example, the retail giant Walmart is currently setting up a $350 billion program over the next decade to produce toys, household appliances or textiles in the United States independently of Asian manufacturers. In the semiconductor industry, major players such as Intel, TSMC, Texas Instruments and Samsung have announced investments of $115 billion on fabrication plants in the United States rather than expanding their capacity in Asia. Similarly in Europe, numerous projects around regional battery value chains have been announced, including Northvolt in Sweden, Poland and Germany or ACC in France.
On many levels, these ideas fundamentally contradict the thinking of the past decades, according to which supply chains were essentially planned around the lowest landed cost possible. This cost focus led to a strong concentration of production in Asia in many industries. The resulting supply chains benefited from low wages, material and energy cost advantages, and low transportation costs, while the associated supply networks often span the globe. As a result, complex structures developed with correspondingly long supply chains and long response times, especially for the markets in Europe and North America.
However, events such as the 2011 earthquake in Japan, the COVID-19 pandemic and geopolitical tensions/conflicts have highlighted the limits of these global supply chains. Even small disruptions such as a fire at a supplier somewhere in Asia, a border closure or the brief blocking of the Suez Canal in March 2021 can throw highly complex networks out of sync and can lead to supply problems in other parts of the world. Returning to orderly working networks often takes weeks, if not months. Add to this the increasing focus on CO2-efficient supply chains that also requires reorientation, supporting the trend away from the traditional global export model.
By Knut Alicke, Kai Hoberg and Julien Mauhourat ·
July 7, 2022
For the last five years, concepts such as reshoring, nearshoring or China+1 (see sidebar) have been propagating a stronger regionalization of industrial production. Instead of confining global production to Asia, production should take place in (or close to) the market with regional supply chains. The aim for many managers and politicians is resilient local production at low cost with short delivery times and minimum CO2 emissions.
Numerous companies in Europe and North America from very different industries are following this trend: For example, the retail giant Walmart is currently setting up a $350 billion program over the next decade to produce toys, household appliances or textiles in the United States independently of Asian manufacturers. In the semiconductor industry, major players such as Intel, TSMC, Texas Instruments and Samsung have announced investments of $115 billion on fabrication plants in the United States rather than expanding their capacity in Asia. Similarly in Europe, numerous projects around regional battery value chains have been announced, including Northvolt in Sweden, Poland and Germany or ACC in France.
On many levels, these ideas fundamentally contradict the thinking of the past decades, according to which supply chains were essentially planned around the lowest landed cost possible. This cost focus led to a strong concentration of production in Asia in many industries. The resulting supply chains benefited from low wages, material and energy cost advantages, and low transportation costs, while the associated supply networks often span the globe. As a result, complex structures developed with correspondingly long supply chains and long response times, especially for the markets in Europe and North America.
However, events such as the 2011 earthquake in Japan, the COVID-19 pandemic and geopolitical tensions/conflicts have highlighted the limits of these global supply chains. Even small disruptions such as a fire at a supplier somewhere in Asia, a border closure or the brief blocking of the Suez Canal in March 2021 can throw highly complex networks out of sync and can lead to supply problems in other parts of the world. Returning to orderly working networks often takes weeks, if not months. Add to this the increasing focus on CO2-efficient supply chains that also requires reorientation, supporting the trend away from the traditional global export model.
July 7, 2022
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Article Topics
COVID-19 ·
Global Trade ·
LTL ·
Nearshoring ·
Reshoring ·
