Having disproportionately been impacted by supply chain disruptions, semiconductor shortages and rising costs, an increasing number of automotive companies are moving their manufacturing closer to home to increase resilience.
Trade in Transition, an annual study commissioned by DP World, led by Economist Impact, and launched at the World Economic Forum, found that automotive companies are four times more likely to move their manufacturing closer to home than they would have been just a year ago.
While the sector keeps a positive outlook overall, due to an increase in customer demand for the year ahead, 38% of executives said they are either moving their manufacturing or switching to a regional supplier. Another 46% were less prescriptive but highlighted the necessity to diversify their supplier base.
A quarter of surveyed executives quoted rising inflation and higher input costs as their main reasons for pessimism. Whereby, 57% expect a contraction in exports by up to, or more than, 20% if inflation continues to rise and monetary policy is tightened in the next twelve months.
Home to some of the best-known car makers, Europe is described as the largest market for outsourcing of all services, followed by North America. The shift means that companies, many of which have traditionally produced further afield, are now moving production closer to home markets.
Globalisation vs. regionalisation
Despite a clear trend towards regionalisation, industry experts however, insist that globalisation is not in decline, but rather that critical parts are regionalised to increase control over global supply chains.
In a further attempt at making their supply chains more resilient and to reduce costs, most automotive companies have started to intensify efforts to reduce inventory. While in 2021 56% of companies held inventories of between two weeks to three months, this number has dropped to 49% in 2022.
Speaking on the report, Mohammed Akoojee, Chief Operating Officer, DP World Logistics, said: “The pandemic brought supply chains to the world’s attention. Now we face looming global economic challenges — from rising inflation and energy costs – as well as geopolitical tensions and climate change events. But there is a real drive for companies to become more resilient. Rather than being reactive, most automotive companies are making a conscious decision to move their manufacturing closer to home or the end-consumer to give them greater control over their supply chains and to protect themselves from future shocks. Being agile and having sophisticated planning capabilities, enabled by improved end-to-end visibility of supply chains, will be key to mitigating these challenges and harnessing the opportunities that 2023 will surely bring”.
A growing trend across industries
The survey of 3,000 respondents, looked at various industries. Noteworthy for the energy sector was that with 40% nearly twice as many companies moved manufacturing closer to home this year, while 33% said they were expanding into more stable and transparent markets due to geopolitical events.
Technology will also play a big role in 2023 for most companies. Around 80% of executives said they expect to adopt new technologies to reconfigure their supply chains. In fact, technology is a key reason for executives to remain a positive outlook, with a quarter saying technology will have a positive impact on global trade by allowing them to monitor supply chains and increase efficiencies.
Interestingly, 51% of executives have said they have adopted digital platform solutions to engage with customers and suppliers in 2022. The aim for 38% of them is now to focus on more advanced technology such as automation and robotics to drive even greater efficiencies.
To see the report in full please click here.
