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The Next Big Business Trend for Global Mobility
For decades, many Western manufacturers shifted production to Asia and China for countless items – including consumer products, textiles, cell phones, computers, microchips and much more. The intent was to lower labor costs and raise profits.
As global supply chains continue to feel great pressure, offshoring production to far off locations may be reversed.
How might this trend impact global mobility?
Global Instability Impacts Globalization Efforts
Concerned with global stability and COVID-19 lockdowns, CEOs have started researching plans to relocate production closer to home – more than even during the first six months of the pandemic, according to Bloomberg.
U.S. Treasury Secretary Janet Yellen has called for more “friend-shoring” – also called “near-shoring”, “re-shoring” or “on-shoring” –in a push for U.S. companies to become less reliant on geopolitical rivals. Larry Fink, CEO of Blackrock, said the war in Ukraine has "put an end to globalization” and “companies and governments will also be looking more broadly at their dependencies on other nations."
A December study by Goldman Sachs found 75 percent of respondents plan to diversify their supply chains.
Such strategies are designed to:
- Reduce risk: Numerous industries fell victim to offshored product availability that stalled their business.
- Avoid geo-political concerns: This can include trade wars and actual wars – as seen when hundreds of western companies exited Russia after its invasion of Ukraine. With China-Taiwan tensions escalating, U.S. companies in Taiwan are taking proactive measures to insulate themselves from potential business risks.
- Decrease supply chain delays: In-country or regionally produced products have a more streamlined distribution process and don’t usually require expensive overseas shipping.
- Greater quality control: Re-shoring closer to home provides greater control over the production process and quality standards to ensure consumers receive the highest quality of products in a timely manner.
- Reduce time zone differences: Re-shoring allows companies to proactively avoid issues before they disrupt their manufacturing process as collaboration between individuals in closer time zones reduces communication challenges.
- Sustainability Efforts: Re-shoring/near-shoring also adds sustainability and ESG (Environmental, Social, and Governance) benefits. Shorter, “greener” supply chains mean lower carbon emissions and reduced Scope 3 emissions (emissions generated indirectly by a company’s activities).
Supply Chain Stability vs. Expense Savings
Some U.S. business sectors – automotive, aerospace, textiles, microchips, etc. – have started re-shoring faster than others, but re-shoring or near-shoring of manufacturing and supply chains is no small task. It is also not without risk and still influenced by the global locations where necessary manufacturing supplies and raw materials are sourced.
Consider the situation of an Italian maker of hydraulic equipment. They had re-shored their steel and wire supply chain from China to a European regionalized approach. One of the new regional suppliers where they sourced iron was located in Mariupol, Ukraine – a city that became completely devastated when Russia invaded. The company had to scramble to get this supply component all the way from India.
Despite much political pressure for companies to come back home, it is a huge investment and can often take years to accomplish. The biggest challenges may be in the U.S. and Europe:
- First: energy and construction costs in the U.S. and Europe are higher than many offshored locations. If certain raw materials for production are sourced locally at much higher prices, companies may need to push that cost onto consumers who may not be willing to buy;
- Second: inflation in the U.S. and Europe have pushed employees to demand higher compensation and benefits, and construction and energy costs have grown even higher;
- Third: U.S. manufacturing employment is still below its pre-pandemic level and only two-thirds of what it was just two decades ago; and
- Fourth: not all employees of various countries are equally qualified. Depending on the product being manufactured, companies feel significant skills gaps exist in countries where companies can near-shore for precision, high-tech manufacturing skills and operations. Certain components of equipment also can’t be made in all locations and must be brought from countries with higher skilled employees.
Though nations like China have huge manufacturing advantages, more companies in western Europe have begun near-shoring factories to Eastern Europe and more U.S. companies are near-shoring manufacturing to Mexico and Central America due to lower capital and labor costs.
Consider that 172 of 260 company executives with manufacturing plants in China acknowledged their interest in near-shoring to Mexico to supply the U.S. market, as reported by Border Now magazine.
What This All Means to Global Mobility
With all the talk of relocating manufacturing and supply chains, many experts believe companies will respond by both 1) diversifying suppliers and 2) relocating to near-shore, low-wage countries.
Global Mobility Managers would be wise to think about how best to plan and prepare for regional / global group moves and entries of new employees/families into previously untapped locations. For instance, regarding Taiwan, this may be a “slow drip” over time transition that might not be highly noticeable, unless there is a blockade or hostilities.
NEI encourages client global mobility stakeholders and management to collaborate and work closely before a decision to re-shore or near-shore is made so:
- key talent can be identified as potential relocation candidates,
- visa and immigration needs can be researched to establish necessary timelines, and
- realistic costs projections can be made.
As some countries fight “brain drain” – the loss of educated, skilled talent leaving for countries with more opportunity – they will take aggressive measures to keep that talent from leaving.
Yet the “brain drain” will continue.
In March 2022 alone, a Russian technology industry trade group estimated between 50,000 and 70,000 tech workers had left the country and an additional 70,000 to 100,000 would soon follow. In China, since the nation’s aggressive COVID lockdowns, middle-class and wealthy citizens’ inquiries to immigration consultants have surged.
History shows people will sacrifice and find a way to leave situations they do not see as sustainable. Western countries and companies may continue to benefit in the future and should be prepared.
Pre-Planning is Everything
Consider the projection by the McKinsey Global Institute that re-shoring and near-shoring production will relocate between 16 and 26 percent of the value of world trade in the next five years – that’s up to one in four facilities!
Imagine having a crystal ball and being able to plan for the unimaginable disruptions like COVID-19 well in advance. This might be one’s chance to prepare for a potentially huge trend looming on our horizon.
If you would like to discuss how best to support your company’s initiatives with re-shoring, near-shoring or global group moves – as well as relocation, retention and immigration needs for key local national or international employees – please contact your NEI representative.
In addition to normal global mobility services, NEI is also able to provide clients with worldwide assistance in identifying commercial locations in which to relocate.
The Next Big Business Trend for Global Mobility
For decades, many Western manufacturers shifted production to Asia and China for countless items – including consumer products, textiles, cell phones, computers, microchips and much more. The intent was to lower labor costs and raise profits.
As global supply chains continue to feel great pressure, offshoring production to far off locations may be reversed.
How might this trend impact global mobility?
Global Instability Impacts Globalization Efforts
Concerned with global stability and COVID-19 lockdowns, CEOs have started researching plans to relocate production closer to home – more than even during the first six months of the pandemic, according to Bloomberg.
U.S. Treasury Secretary Janet Yellen has called for more “friend-shoring” – also called “near-shoring”, “re-shoring” or “on-shoring” –in a push for U.S. companies to become less reliant on geopolitical rivals. Larry Fink, CEO of Blackrock, said the war in Ukraine has "put an end to globalization” and “companies and governments will also be looking more broadly at their dependencies on other nations."
A December study by Goldman Sachs found 75 percent of respondents plan to diversify their supply chains.
Such strategies are designed to:
- Reduce risk: Numerous industries fell victim to offshored product availability that stalled their business.
- Avoid geo-political concerns: This can include trade wars and actual wars – as seen when hundreds of western companies exited Russia after its invasion of Ukraine. With China-Taiwan tensions escalating, U.S. companies in Taiwan are taking proactive measures to insulate themselves from potential business risks.
- Decrease supply chain delays: In-country or regionally produced products have a more streamlined distribution process and don’t usually require expensive overseas shipping.
- Greater quality control: Re-shoring closer to home provides greater control over the production process and quality standards to ensure consumers receive the highest quality of products in a timely manner.
- Reduce time zone differences: Re-shoring allows companies to proactively avoid issues before they disrupt their manufacturing process as collaboration between individuals in closer time zones reduces communication challenges.
- Sustainability Efforts: Re-shoring/near-shoring also adds sustainability and ESG (Environmental, Social, and Governance) benefits. Shorter, “greener” supply chains mean lower carbon emissions and reduced Scope 3 emissions (emissions generated indirectly by a company’s activities).
Supply Chain Stability vs. Expense Savings
Some U.S. business sectors – automotive, aerospace, textiles, microchips, etc. – have started re-shoring faster than others, but re-shoring or near-shoring of manufacturing and supply chains is no small task. It is also not without risk and still influenced by the global locations where necessary manufacturing supplies and raw materials are sourced.
Consider the situation of an Italian maker of hydraulic equipment. They had re-shored their steel and wire supply chain from China to a European regionalized approach. One of the new regional suppliers where they sourced iron was located in Mariupol, Ukraine – a city that became completely devastated when Russia invaded. The company had to scramble to get this supply component all the way from India.
Despite much political pressure for companies to come back home, it is a huge investment and can often take years to accomplish. The biggest challenges may be in the U.S. and Europe:
- First: energy and construction costs in the U.S. and Europe are higher than many offshored locations. If certain raw materials for production are sourced locally at much higher prices, companies may need to push that cost onto consumers who may not be willing to buy;
- Second: inflation in the U.S. and Europe have pushed employees to demand higher compensation and benefits, and construction and energy costs have grown even higher;
- Third: U.S. manufacturing employment is still below its pre-pandemic level and only two-thirds of what it was just two decades ago; and
- Fourth: not all employees of various countries are equally qualified. Depending on the product being manufactured, companies feel significant skills gaps exist in countries where companies can near-shore for precision, high-tech manufacturing skills and operations. Certain components of equipment also can’t be made in all locations and must be brought from countries with higher skilled employees.
Though nations like China have huge manufacturing advantages, more companies in western Europe have begun near-shoring factories to Eastern Europe and more U.S. companies are near-shoring manufacturing to Mexico and Central America due to lower capital and labor costs.
Consider that 172 of 260 company executives with manufacturing plants in China acknowledged their interest in near-shoring to Mexico to supply the U.S. market, as reported by Border Now magazine.
What This All Means to Global Mobility
With all the talk of relocating manufacturing and supply chains, many experts believe companies will respond by both 1) diversifying suppliers and 2) relocating to near-shore, low-wage countries.
Global Mobility Managers would be wise to think about how best to plan and prepare for regional / global group moves and entries of new employees/families into previously untapped locations. For instance, regarding Taiwan, this may be a “slow drip” over time transition that might not be highly noticeable, unless there is a blockade or hostilities.
NEI encourages client global mobility stakeholders and management to collaborate and work closely before a decision to re-shore or near-shore is made so:
- key talent can be identified as potential relocation candidates,
- visa and immigration needs can be researched to establish necessary timelines, and
- realistic costs projections can be made.
As some countries fight “brain drain” – the loss of educated, skilled talent leaving for countries with more opportunity – they will take aggressive measures to keep that talent from leaving.
Yet the “brain drain” will continue.
In March 2022 alone, a Russian technology industry trade group estimated between 50,000 and 70,000 tech workers had left the country and an additional 70,000 to 100,000 would soon follow. In China, since the nation’s aggressive COVID lockdowns, middle-class and wealthy citizens’ inquiries to immigration consultants have surged.
History shows people will sacrifice and find a way to leave situations they do not see as sustainable. Western countries and companies may continue to benefit in the future and should be prepared.
Pre-Planning is Everything
Consider the projection by the McKinsey Global Institute that re-shoring and near-shoring production will relocate between 16 and 26 percent of the value of world trade in the next five years – that’s up to one in four facilities!
Imagine having a crystal ball and being able to plan for the unimaginable disruptions like COVID-19 well in advance. This might be one’s chance to prepare for a potentially huge trend looming on our horizon.
If you would like to discuss how best to support your company’s initiatives with re-shoring, near-shoring or global group moves – as well as relocation, retention and immigration needs for key local national or international employees – please contact your NEI representative.
In addition to normal global mobility services, NEI is also able to provide clients with worldwide assistance in identifying commercial locations in which to relocate.
