Dozens of multinational firms are planning to move production to so-called friendlier countries, according to a European Central Bank (ECB) survey, with China cited as the major worry in company boardrooms.
More than 40% of multinational firms surveyed by the ECB said they were looking to “near-shore”, or bring production closer to their point of sales.
Firms have increasingly discussed shifting production sites after the pandemic and Russia’s war in Ukraine disrupted value chains, but there has been little evidence of mass relocations.
Seeking on-the-ground confirmation, the ECB surveyed 65 major firms with a global footprint and 49% said they were looking to “near-shore”, while 42% wanted to “friend-shore” some operations, or move them to more welcoming locations.
“As to those countries which posed – or could pose – a risk to supply chains in their sector more generally, two-thirds of all respondents cited China,” the ECB said in an Economic Bulletin article.
More than half of the firms sourced critical materials from a specific country or small number of countries, and nearly all said that these supplies now faced elevated risk.
“A large majority of these identified China as that country, or one of those countries, with all of them considering this an elevated risk,” the ECB added.
Near-shoring was already a tendency in recent years but friend-shoring is a new phenomenon as only 11% said they were already pursuing such a strategy in the past five years.
The European Union is still likely to be a loser in such corporate movements as the number or firms looking to move production out of the bloc remains larger than the number moving it in, and this could have a “significant” impact on employment.
The moves could also fuel inflation as close to half of firms said they expected the changes to result in higher prices, the paper added.
- Reuters with additional editing by Sean O’Meara