Is relocating production a good idea?

As soon as COVID-19 began to spread and reached the stage of a pandemic, the first conclusion drawn was that Western countries had to relocate production to their territory.

Let’s be clear, the concern here is not to fight against the spread of any virus or to prevent its appearance in the future (a subject which is totally off the radar this being) but to guarantee the production and supply capacities that are put at risk when suddenly a “factory of the world” country decides to cease all activity.

Relocation: an issue that goes far beyond the COVID-19 case

Here we are talking about Western countries (and in this case France), China, a virus and mainly manufacturing activities, but it makes sense to extend the reflection to a broader framework.

  • Manufacturing activities are not the only ones targeted: once you can no longer get to your workplace, all activities are potentially affected. Remote work may apply to some of the activities, but a call centre or research centre located abroad will still have difficulty operating.
  • We are talking about countries or companies that have relocated production, but even without this, widespread containment across any country can block supply chains. There are European companies that produce in Europe, rather in highly specialised cutting-edge industries or those requiring specific know-how, which if they stop will affect the whole world because there are no alternatives elsewhere.
  • We are talking about a virus but other causes can have the same effects: a natural disaster, a war… And in these cases the problem will be much more long-lasting because once the event is over, it will often be necessary to repair or even rebuild before producing.

It would be a mistake to look at the issue of relocation with blinkers on, with only COVID-19 in sight. The pandemic is just one example of the phenomena that should lead us to question the risk that any form of relocation poses to our supply chains and, by extension, to our national economies.

Hypothesis of a crisis in a non-delocalized world

To fully appreciate the extent to which offshoring has been a weakness that calls it into question, let us imagine what might have happened if many companies had not transferred all or part of their production to China.

First of all, it would have made no difference to the appearance and spread of the virus. It is not the delocalization that made it appear and it is not the delocalization that propagated it, people travelling around the world do not all do it to visit a production center in China! And even if we had, from day one, put China under a bell to prevent the spread of the virus to the rest of the world, it wouldn’t have prevented the total shutdown of production there. So the problem would have been the same. So of course we can say that no virus or a virus that would have remained Chinese would have meant no masks and therefore no need to buy masks from China, but the supply of masks is only a tiny part of the problems that arose.

On the other hand, we could have continued to produce in our local factories and therefore continue to run the economic circuits as if nothing had happened and therefore not stop local production lines waiting for spare parts from China or not stop commercial activities concerning products manufactured there because of shortages.

Yes, but…

There’ s not only China on earth…

Yes, but the virus spread and we had to stop producing in our country too. So we’re back to square one.

And then, if we assume that everyone produces in their own country, we are not safe from natural disasters in our Western or non-Western countries, with high labour costs. We saw a tsunami in Japan. An earthquake in Silicon Valley is expected and foreseen. A hurricane in the central United States happens every year and tomorrow Europe will be subject to the same phenomena. I was going to say that the countries in question are not exposed to the risk of war or social instability, but the example of South America should make us think twice (and yes if we relocate everyone relocate…) and, above all, the example of the yellow vests in France shows us that to believe that we are sheltered from such phenomena would be very presumptuous. Let’s add to this that the United States are not safe from a new “Tea Party” and we don’t know what the post-Brexit UK has in store for us.

So what would have happened in a localized economy if, in the case of France, a virus had been born here (and why not?), if the yellow jackets had decided to burn the capitalist productive fabric or if a hurricane or an earthquake (there are some…) had destroyed a major manufacturing zone?

We would have shouted at poor risk anticipation and urged our leaders to delocalize our production to protect us against local risks.

Offshoring or Distribution?

The subject is therefore not as simple as it might appear if we take it away from purely political considerations and focus solely on a country’s ability to maintain its sources of supply. All the more so since, again without political considerations, maintaining its production system afloat is no guarantee of maintaining its supply except to aim at self-sufficiency in all areas, which is totally impossible. Indeed, if the other countries from which one obtains supplies remain exposed to the risks from which one has escaped, this does not change much.

The best solution therefore does not seem to be intensive delocalisation as we have done, nor over-relocation as we promise, certainly under the influence of emotion. What is needed is a better distribution of production activities.

Let us not forget that the starting point is supply and not employment. What we can learn from the episode we have just lived through and if we try to generalise is that the debate should not be between relocation and relocation but between concentration and distribution.

The risk is not to produce elsewhere but to produce everything in the same place, no matter which one! Rather than blind relocation, it is more important to distribute intelligently to produce in different places, including locally, so that if one part of the world is at a standstill, we keep a smaller but operational production capacity.

And I’m not even talking about the cost issues that would make local production either jobless or unaffordable and therefore without commercial opportunities.

Photo : Factory by Fishman64 par Shutterstock

Head of People and Business Delivery @Emakina / Former consulting director / Crossroads of people, business and technology / Speaker / Compulsive traveler
Head of People and Business Delivery @Emakina / Former consulting director / Crossroads of people, business and technology / Speaker / Compulsive traveler

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