Europe: lack of production capacity and higher costs
The fact is, though, that production capacity in Europe is sadly lacking. In many cases, businesses that are serious about re-regionalizing their supply chains have to first support the construction of manufacturing facilities, before they can procure on a large scale from their own continent.
As well as the advantages of a regional supplier relationship already mentioned, there is also the boost in European value creation and new jobs that an increase in European production would bring. In the current recession which may well lead to more unemployment yet, supply chain re-regionalization could create new opportunities.
We should remember, though, that while manufacturing in Europe is known for its high quality, it usually costs more than in Asia; as a result, products manufactured in Europe are usually more expensive. This is not something that every consumer wants, or is able to afford. And so there will remain an integral Made in China element in many companies’ supply chains.
To justify a higher price, businesses should create transparency for consumers: for example, it is not currently obligatory to declare the origin of individual ingredients or primary products in processed foods. So, consumers are not aware that the almonds in their muesli come from California, the honey comes from Chile, and the dried strawberries come from China. Yet the finished product can still be labeled Made in Europe. If you want to charge more for products that are more local, you need to raise awareness of this first. The success of locally grown fruit and vegetables that are snapped up in supermarkets is proof that this can work.
Bringing it home
The best place for companies seeking to diversify their supply chain and make it more regional is with market research: what primary products are procured or produced in Europe? What capacity is available? Are there components that have previously been bought from elsewhere that might be worth setting up production for (make or buy analysis)?
If regional production is available, it is possible to forge a strategic partnership to develop quality standards and innovations together with the supplier. This relationship also gives suppliers the security to make investments themselves and expand production if required.
In order to set up production from scratch, it is reasonable to work together with universities and other scientific or academic institutions. They can build up the skills necessary for this evolution: knowledge that might have been lost or was simply never there.
For single primary products, it can be a sensible move to collaborate with other businesses that have similar requirements when it comes to procurement. This collaboration would create revenue opportunities for aspiring European entrepreneurs and investors, and can warrant setting up new or expanding capacity.