23008_Nearshoring Report

So, what are the drivers and advantages of nearshoring for specific types of product segments? Focusing on those sectors where there are clear advantages to locating production closer to markets of consumption and where businesses have already been doing so, we have considered what is specifically driving nearshoring of manufacturing and in which countries these operations have tended to be located.

MACHINERY, ELECTRONICS & ELECTRICAL

APPAREL & TEXTILES

CONSUMER GOODS

AUTOMOTIVE

KEY FACTORS driving initiatives to nearshore production include: • Low labour costs in production locations such as Turkiye, Morocco and Central & Eastern European (CEE) countries • Being located closer to markets of consumption means shorter journey times and lower transport costs , shorter lead times for orders and greater flexibility and control • As impact of operations is an increasingly important driver for the textiles and apparel sector, closer production locations means easier oversight of conditions

KEY FACTORS include: • Legacy of sectors importance in major European manufacturing countries means that there are existing skills and knowledge networks • Lower costs, particularly labour costs in near-Europe and CEE, and transport costs especially for bulky, heavy goods • Products being made are specifically for the European market (both in terms of consumer preference and technical requirements) • High levels of automation mean operations are less exposed to wage costs generally • Key driver of growth for new facilities or transformation of existing ones is the need for more electric vehicles (EVs) and their components

KEY FACTORS include: • Where there are increased constraints, costs or challenges moving product from farther-away locations to markets of consumption, particularly during the recent shock of the Covid-19 pandemic • Shorter transport routes mean lower transport costs, greater flexibility (especially for supply of components for JIT production) and lower environmental impact • Lower wages in CEE and near-Europe locations like Türkiye mean operations are competitive with farther-away locations • Increased demand for products such as bicycles is being driven by increased focus on e-mobility and non-fossil fuel modes of transport

EQUIPMENT KEY FACTORS include: • Higher levels of automation within production processes, reducing exposure to labour cost differential • Closer proximity means increased flexibility and greater control, reduced lead times and improved communication and oversight to ensure quality control. • Supply chain resilience and security through development of localised/ regionalised supply especially of key products such as semiconductors • Geopolitical dynamics are also inflecting this through government incentives and support programmes designed to bolster technological sovereignty

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• Governments are also actively incentivising investment in new automotive technologies

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