A resurgence in manufacturing in western Europe appears unlikely, with only 11% of European manufacturers planning to move their operations back to western Europe in the next three years, according to a report by real estate firm Colliers International and real estate association CoreNet Global.
At the same time, locations such as central and eastern Europe and Turkey are expected to benefit from businesses in nearby countries transferring operations there, or 'nearshoring'. As much as 48% of the report's respondents said they were planning to increase production in these regions. Regions expected to record growth in manufacturing activity include China, India and Latin America, where respondents are planning to ramp up activity by 44%, 37% and 30%, respectively.
Guy Douteil, managing director of Europe, the Middle East and Africa corporate solutions at Colliers International, described the findings of the report as surprising, given that “the general perception, based on all the hype around offshoring and reshoring, was that manufacturing businesses were flocking back to Europe”.
However, the report is in line with the UK-related findings of market research firm YouGov released earlier this year. According to the survey, which was commissioned by Business Birmingham, the city's inward investment agency, only one-third of UK manufacturers have plans to source more production domestically in the next five years, and only 51% of respondents are planning boost their production capacity within the UK.
Surprisingly, lower labour costs are not the main factor behind offshoring decisions. Although 35% of respondents pointed to cost concerns, 46% defined proximity to new customers as the primary reason for locating production outside western Europe. “Establishing production close to destination markets allows manufacturers not only to simplify supply chains, but also to adapt products to local preferences and adjust production flows more quickly,” says the report.
Nevertheless, the authors of the report argue that developed markets remain competitive for certain elements of the manufacturing process. As companies seek to optimise production and distribution costs, they look at different elements of their manufacturing process and allocate different parts of their supply chain to the most competitive location, in a process known as ‘best-shoring’.
“Europe is set to increase its appeal as a 'best-shoring' option, poised to benefit from changes to rail and deep-sea ports, meaning it can reach broad consumer markets in Europe and Asia,” said Mr Douteil.