EU and US reindustrialisation accelerates: Study
Companies in Europe and the United States are set to plough more money into bringing manufacturing home after the Covid-19 pandemic and Russian invasion of Ukraine disrupted the global economy, a study published yesterday found.
The report by consulting firm Capgemini found that companies in 13 industrial sectors in 11 countries in Europe and the United States plan to invest US$3.4 trillion (RM16 trillion) over the next three years on bringing manufacturing home or to a nearby country.
That is up from US$2.4 trillion in the past three years.
“The rapidity with which reindustrialisation has taken hold is remarkable,” said the report.
“Driving this is the imperative to promote supply chain resilience and flexibility; increase both the availability and appeal of skilled manufacturing jobs; meet climate targets; re-establish national security in strategic sectors, and regain the manufacturing might that the industrial powerhouses of Europe and North America once enjoyed.”
The Covid-19 pandemic severely disrupted global supply chains, making many companies want to regain greater control over raw materials and components.
The Russian invasion of Ukraine brought to the fore the national security aspect of having control over essential supplies and the necessary manufacturing capacity.
“We were surprised by the magnitude of the phenomenon” of relocalisation of manufacturing, one of the report’s authors, Etienne Grass, told AFP.
He noted that the investment represents an average allocation of around 8.7% of revenue of the companies it surveyed.
“That’s really a considerable amount.”
Some 1,300 senior executives of industrial firms with more than a US$1 billion in annual revenue were interviewed for the survey in February.
The companies were located in Britain, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden and the US.
The top reason cited by companies for reindustrialisation was to strengthen their supply chains, followed by the importance of establishing a domestic manufacturing infrastructure to ensure national security.
In third place was reducing greenhouse gas emissions, followed by taking advantage of financial incentives to reindustrialise offered by their governments.
While US companies have the largest reinvestment plans in absolute terms at US$1.4 trillion, it trails companies in other nations in terms of percentage of gross domestic product (GDP), said Grass.
The German reindustrialisation effort is equivalent to 20% of GDP and the French effort is 13%, compared to 5% for the US despite the generous subsidies offered under the Inflation Reduction Act.