Globalisation and cross-border trade have been the norm and key driver of the global economy for decades; but a new dawn is rising with protectionist trade policies, trade wars, and the Covid-19 pandemic severely disrupting supply chains and forcing companies to examine new models and strategies in a bid to mitigate risk. The reversing of globalisation is the new reality where regionalisation will be increasingly important.

There is an acute need for companies to be more resilient to external shocks and to be able to handle global disruptions. To diversify current globalised supply chains, strategies incorporating reshoring, nearshoring, and offshoring are creating opportunities to build more regionalised supply chains and reduce dependence on a complex global web. This shift is causing a vast ripple effect around the world with nearly 85 million manufacturing jobs set to be affected globally. To support Swedish companies with their strategies, Business Sweden has undertaken extensive research in EMEA to identify the emerging hotspots for global supply chain nearshoring. The findings of this research underpin this article.

The reality is not always simple

While change is already progressing, the reality of a complete shift in supply chain dynamics will not be simple. Offshoring will remain strong because of the interdependencies with Asia, particularly China, the region’s integrated chains, and the cost of withdrawing. A company looking to withdraw just one percent from China and nearshore this to an experienced country like Poland would require an increase of production in Poland by 25 percent. Assessing current offshore set ups need to consider the depth and specialisation of the supply chains and sheer volume of manufacturing in China to enable a smooth transition. Many countries are pursuing a China +1 model, where they diversify to another country within APAC to reduce full dependence on China within the Asian markets.

To diversify current globalised supply chains, strategies incorporating reshoring, nearshoring, and offshoring are creating opportunities to build more regionalised supply chains and reduce dependence on a complex global web.

Strategies which focus on reshoring, returning manufacturing and supply chains to the company’s home country in Europe, is mainly driven by three factors: automation and the possibility to implement more flexible and efficient supply chains, higher quality, and utilisation of unemployed capacity on home turf. However, reshoring is not possible for manufacturing processes with low availability of labour, high labour costs, and low levels of automation in many industries.

In contrast to both continued offshoring and reshoring, nearshoring is an proving an attractive option for European and Swedish companies. Moving the supply chain closer to home, to the Middle East, Africa or Europe is viable for those activities that demand higher labour availability, lower labour costs while also benefitting from logistical proximity to major consumer markets in Europe.

In EY (Ernst & Young) flash research carried out in May this year with executives in Europe, 88 percent of respondents said they were considering nearshoring to low-cost areas just outside of the EU or in Africa, while 61 percent are looking to reduce dependence on single/dominant source countries as a direct result of the Covid-19 pandemic. Reducing risk is not the only driver behind regionalisation; customer expectations for adaptability, fast delivery and customer proximity, as well ad deeper co-operation with local sub-suppliers are also playing a part. Companies are acutely aware that black swan events and political turmoil have exposed supply chain fragility and are responding accordingly to regionalise their strategies. The role of nearshoring will be a key component both in the short- and long-term as reshoring is not possible for all activities.


EMEA markets emerging as regionalisation hotspots

While reshoring is more straightforward, for most European companies, the likely approach will be to adopt overlapping supply chain strategies and roll this out over several years. Strategies for nearshoring must consider multiple variables to pinpoint the right geography in the region. Emerging nearshoring hotspots in EMEA are in non-EU eastern European countries and North Africa, both benefitting from close geographic and cultural links, providing a cost-effective manufacturing base on Europe’s doorstep. However, for many companies considering nearshoring option these countries remain unexplored.

A successful nearshoring strategy must also analyse and synthesise key KPIs, including the existing supply chain infrastructure and readiness for manufacturing and/or logistics, labour market availability and cost, and macroeconomic factors including political risk, stability and corruption, ease of doing business, and sustainability. Companies also need to consider how local governments are working to incentivise certain sectors, particularly in the Middle East and Africa where local economies are significantly less diversified than their European counterparts.

For the automotive component manufacturing sector consideration should be given to markets in Eastern Europe or North Africa as there are existing supplier bases, however the textile production sector would be better suited to Ethiopia or Jordan which both have existing infrastructure and governmental initiatives to support the industry. Making the correct match is imperative for Swedish companies to exploit nearshoring opportunities in EMEA’s emerging markets

Strategic eye on the future key to success

Future-proofing supply chains to mitigate risks arising from the ongoing power shift and global recession is non-negotiable if Swedish companies want to stay competitive in EMEA. Understanding the risks and opportunities associated with supply chain strategies is part of the approach, but Business Sweden’s expert teams around the world go beyond analysis. Our global presence and unique government mandate mean we can offer strategic advice and hands-on support to ensure supply chain management and diversification is aimed at the right markets, with the right approach. Business Sweden can support with everything from identifying, selecting and establishing manufacturing in new countries, to mergers and acquisitions of local companies, establishing local distribution and sourcing partnerships, and beyond to hands-on support with recruitment, local incubation and finding and engaging with reliable local logistics solutions providers.