EU, US reindustrialization accelerates, study shows

PARIS, France — Companies in Europe and the United States are set to plow more money into bringing manufacturing home after the COVID-19 pandemic and Russian invasion of Ukraine disrupted the global economy, a study published Thursday 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 $3.4 trillion over the next three years in bringing manufacturing home or to a nearby country.

That is up from $2.4 trillion in the past three years.

“The rapidity with which reindustrialization has taken hold is remarkable,” said the report.

“Driving this is 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,” it added.

Global supply chains

The COVID-19 pandemic severely disrupted global supply chains, making many companies want to regain greater control over raw materials and components.

READ: Supply chain disruption – how COVID-19 hit economies

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 relocalization 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 percent of revenue of the companies it surveyed.

“That’s really a considerable” amount, Grass said.

Some 1,300 senior executives of industrial firms with more than $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 United States.

Domestic manufacturing infra

The top reason cited by companies for reindustrialization 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 reindustrialize offered by their governments.

While US companies have the largest reinvestment plans in absolute terms at $1.4 trillion, it trails companies in other nations in terms of percentage of gross domestic product, said Grass.

READ: German industry grows in Jan but car output remains weak

The German reindustrialization effort is equivalent to 20 percent of GDP and the French effort is 13 percent, compared to five percent for the United States despite the generous subsidies offered under the Inflation Reduction Act.

In addition to bringing production back or near home, companies are also reducing their dependence on China by investing in other emerging market nations, the report found.

“To this end, businesses are distributing their critical assets (such as production facilities, warehouses, and logistics centers) across geographies such as India, Southeast Asia, Africa, and Mexico,” it said.