23008_Nearshoring Report

First, which sectors are less likely to see movements to closer locations for production?

Sectors which rely on proximity to primary products especially where these are perishable such as fresh food. Processing of these products from field to transport-stable products (for example, fresh fruit and vegetables being picked and some processed into cooked versions and canned, jarred or bottled) are most appropriately and efficiently done near to where they are grown. Subsequent transformation of these products (for example, from a tinned tomato into a component of a ready-meal for sale in a supermarket) is most appropriately done near the point of consumption, especially where the secondary or tertiary product itself is perishable or where there are local market-specific demands from consumers (for example, a fruit juice drink in the Nordics may be very different to one in Southern Europe). Also transporting finished products can also be less effective volumetrically than shipping bulk product which can be transformed or processed closer to the markets of consumption.

Sectors which rely on labour-intensive transformation (that is, where the cost of labour is a far higher proportion of overall cost and therefore Far Eastern locations are in a far more competitive position) Sectors which require highly manual processes are less likely to make the economic case for nearshoring to higher labour cost locations stack up.

Sectors where there are prohibitively high costs of moving production which make it untenable – such is the level of sunk cost in existing facilities or within skills and commercial ecosystems, that to pick them up and move them nearer to home markets would actually be costlier than the entire value chain. However, it is worth noting that there may opportunities for nearshoring where there are compelling reasons other than cost to disrupt already-established operations. For example, the drive to create more sustainable ways to produce steel could result in relocation of plants/foundries in modern facilities in locations closer to the markets of consumption. Similarly, governments may feel that there are compelling social and political reasons to ensure a secure supply of pharmaceuticals and medical devices, particularly considering the recent healthcare emergency, which could lead to interventionist policies to support the location of production facilities within or close to home markets.

27

28

C U S H M A N & WA K E F I E L D

I N D U S T R I A L E VO L U T I O N | N E A R S H O R I N G