Bringing factories back to the Netherlands? That turns out to be very difficult
Short(er) supply lines, independent of China, more sustainable. Bringing production from China back to the Netherlands, called reshoring , has numerous advantages. Still, it doesn’t really get off the ground. Why not? The need is less, the investment is high and moving production to friendly or closer countries is also an option.
In 2020, after the outbreak of the corona pandemic, world trade suddenly stopped. China went into lockdown and factories were shut down to contain the outbreak. And then there was the geopolitical tension between the country and the United States. On top of that came skyrocketing prices for container transport, and the blockade of the Suez Canal by the ship the Ever Given. Enough reasons to reduce dependence on China by bringing production capacity to the Netherlands. Reshoring became fashionable.
No more than plans
More than 2 years later, it has mainly remained good intentions and plans. Only a handful of companies do reshoring or nearshoring, such as moving production to a country that is closer to home, says Bart Jan Koopman, director of Evofendex. That is the business association for trade and logistics. It is best discussed at board level, says Rogier Spoel, policy advisor at Evofenedex. “But with the opening up of China, the dropped container tariffs and the big investment you have to make, you see companies thinking, ‘Let’s not do it.'”
Not an easy job
On top of that come other challenges, such as which country you go to. And whether they have enough raw materials and personnel there, Spoel sums up. “Such big tasks that you don’t just do that.” Companies would rather work around a crisis in a country than leave altogether, Spoel thinks. Or they spread the risk, by looking for suppliers in different countries. “Then you are more resilient when a factory closes.” The American tech giant Apple, for example, is setting the tone by expanding the production of new iPhones in India. This is not without a struggle, the Financial Times discovered in mid-February. Another example is Tesla, the maker of electric cars. It opened a factory in Germany last year, complementing those in the US and China. “Redesigning the global economy,” analysts at Capital Group call the trend in a recent report on reshoring.
China + 1 strategy
Companies are shifting their production locations, but that does not necessarily mean that they are bringing them back within their own national borders. Many U.S. companies are going for the “China + 1 strategy,” Capital Group concludes . Half of U.S. companies choose a country in Southeast Asia. Mexico and India are also in high demand. ‘Friendshoring’, Spoel calls it. “Companies are looking for countries that are a bit more aligned politically with the US.”
Mexico and India in demand
Look at Mexico, which is popular not only because it’s so close to the U.S., but also because it has a free trade agreement with the U.S. Automakers BMW and Nissan have significantly expanded their production capacity in order to better serve the American market.
India, on the other hand, is in high demand again because of its highly educated population and a government that pampers foreign companies, according to Capital Group. And then there is a group of companies that are really bringing production back to the US. This is mainly due to the Biden administration’s subsidy package of no less than 369 billion dollars (342 billion euros).
Hundreds of billions as a lure
Over the next ten years, companies that make funds to generate renewable energy can get a tax credit. This concerns, for example, solar panels, windmills or to make hydrogen. The bizarre amount of money is one of the reasons that companies choose the US instead of Europe, if they were faced with that choice. “As a result, it can be beneficial for some companies to set up production there,” says Joost Ploos van Amstel. He is programme manager sustainable economy at Midpoint Brabant.
From his position at the partnership of nine Brabant municipalities such as Tilburg, Waalwijk, Loon op Zand and Hilvarenbeek, Ploos van Amstel is busy enticing companies to bring their activities to the Netherlands.
“It’s not a storm yet.”
“Savings on logistics and transport costs, less dependent on other countries and good for our labor market”, he enthusiastically sums up the benefits. The fact that these are probably not high-quality jobs does not change that. “If you can bring them to the Netherlands, you can still give people with a distance to the labor market a job.”
The practice is only unruly, notes Ploos van Amstel. “It’s not a storm yet.” In the past year, a handful of companies have taken the plunge. He knows why. “With the current inflation, the question is: how are you going to pay for the necessary research at all?”
Busy with other things
Many companies are also still working to pay off the corona support, according to Ploos van Amstel. “It’s been a difficult, complicated time and reshoring isn’t exactly No. 1 that you’re going to get started with right now.”
“It’s not easy, isn’t it,” he understands the hesitation among companies. “You have to have the capacity and the resources. Or there must suddenly be a necessity, such as when your factory is closed.”
Role of consumers
He also sees a role for the consumer. Companies are where they have to pay the least. “Even if it’s less sustainable. That is also driven by what the consumer wants: as cheap as possible,” he explains. “So there’s a thing there.” “The challenge is that prices should not go up.”
According to him, this plays a role, for example, at retail chain Xenos, which would like to have their products made in the Netherlands based on its own sustainability ambitions. The company and Midpoint Brabant have been talking to each other for six months, but so far without success. “We are in the exploratory phase,” says Ploos van Amstel. According to him, the talks are indeed successful. “We couldn’t have achieved more success than we are achieving now.” “The challenge is that prices must not rise, otherwise the more environmentally unfriendly products will remain on the shelves, and that is bad for the environment,” says Ploos van Amstel. Xenos did not respond to questions from RTL News.
Ploos van Amstel remains optimistic that companies will report to him again. “We’re going to get these kinds of questions again.”
