(Fair) Relocation: A Source of Opportunities and Challenges for Businesses
(Fair) Relocation: a source of opportunities and challenges for businesses
2030, Investir Demain – On December 10, 2024, the first workshop of the working group dedicated to “Fair Relocation” was held. Co-founded by Sycomore AM in collaboration with ID and l’AGEFI, this session provided participants with the opportunity to define the key aspects of this central concept.
Pandemic, the war in Ukraine, trade tensions… In recent years, several geopolitical and economic crises have highlighted the vulnerabilities of a globalized production system based on complex supply chains. In the face of these uncertainties, many companies have begun to reassess their strategies to strengthen their resilience and mitigate the risks of disruptions. For some, these reflections have led to relocation movements, meaning the “repatriation of activities previously offshored to low-wage countries back to their home country.” While this approach can offer advantages, it also raises numerous challenges for the stakeholders involved.
To discuss these challenges, a group of around ten experts gathered on December 12 for the first workshop of the working group dedicated to “Fair Relocalization,” co-led by Sycomore AM.
Relocalization Factors
During this event, the participants notably discussed the factors influencing companies’ decisions to relocate. “Overall, two types of factors can be distinguished,” explained Carmela Di Mauro, professor at the University of Catania and member of the European Reshoring Monitor project. “On one hand, some companies make strategic changes. They seek to improve the quality of their products and/or personalize them further, which involves, for instance, bringing production chains closer to R&D or manufacturing products near sales points. The need for market responsiveness, combined with innovation and higher quality demands, is driving a number of relocations today.”
Another key factor lies in the challenges and disruptions related to global value chains. “Companies are sometimes confronted with hidden costs related to offshoring or changes in the advantages offered by host countries, prompting them to reassess their costs,” continued Carmela Di Mauro. In addition, geopolitical and trade tensions further destabilize supply chains, added Albachiara Boffelli, professor-researcher at the University of Bergamo: “Companies are increasingly taking into account their exposure to disruption risks. They realize how important it is to have control over their value chains.”
In the future, environmental standards, ESG risk management, and growing consumer demand could also increase pressure on companies, noted the two researchers. However, according to Carmela Di Mauro, “there are currently few cases of relocations primarily driven by sustainability considerations.”
Significant Challenges
For companies, relocalization presents significant challenges, especially when reintegrating activities into the local production ecosystem. “Many companies that have failed in their relocalization assumed that transferring resources and reintegrating in the territory would happen instantly,” explained Carmela Di Mauro. “What we have observed is that it is essential to rebuild strong relationships with local stakeholders.”
The importance of relationships with the supplier ecosystem was illustrated by the example of Renault, which launched an ambitious strategic plan, Renaulution, in 2021. “One of the founding principles of this plan is that a strong car manufacturer must first be solid in its home country,” explained Philippine de Schonen, Director of Investor Relations at Renault Group. “In recent years, the Covid crisis and the semiconductor shortage have highlighted the importance of local production. We completely rethought our relationship with our suppliers, shifting from a very contractual approach to a true partnership approach. This in-depth knowledge of the supply chain not only allows us to save time but also to better control our value chains.”
“You cannot relocate a sector in a few months: it’s a long process that requires time and commitment.”
For the car manufacturer, the localization of production activities also fits into a competitiveness logic. “Producing ‘Made in France’ while remaining profitable is possible: our vehicles made in France are profitable,” emphasized Philippine de Schonen. Proximity to final customers, mainly European, as well as to suppliers, helps reduce logistical costs, which represent one of the main variable costs in vehicle production. “For example, nearly 80% of the suppliers to our ElectriCity site are within a 300 km radius, which presents an advantage in terms of both risk management and reducing logistical costs,” she specified.
Technological Levers
However, for many companies, the question of costs remains one of the main obstacles to relocation, whether due to the necessary investments in re-establishing sites or the higher cost of local labor. In this context, the speakers highlighted the key role of technology as an enabler for relocations. “Technology plays a crucial role at all stages of production. In research and development, it allows for product and process simulations, and helps forecast machine settings to maximize quality. It also facilitates concurrent engineering, where several entities, including subcontractors, work with the same tools and data. Finally, during construction, it enables scheduling alignment and optimization of operational phases, whether for quality management, automating inspections, or controlling performance,” explained Amira Tantaoui El Araki, Vice President at CapGemini Invent.
At the same time, technology, and particularly task automation, also helps control labor costs, although these efforts raise questions about the number and nature of jobs created by relocations. These issues will be discussed at the second workshop of the working group, scheduled for January 2025 at Sycomore AM.
“This relocation movement remains fragile and partly depends on the choices made by industrialists and the risks they take, sometimes out of conviction.”
Finally, public levers were also identified as a key factor in relocation, both in terms of regulation and investment. “In recent years, the government has implemented various measures to support this movement and has set ambitious goals with the France 2030 plan. This support has enabled the emergence of relocation projects that would not have happened without it, particularly to offset cost differentials,” reminded Raphaël Didier, Director of Transformation and Strategy at the Innovation Department of Bpifrance. He further clarified: “This relocation movement remains fragile and partly depends on the choices made by industrialists and the risks they take, sometimes out of conviction. You cannot relocate a sector in a few months: it’s a long process that requires time and commitment. We must not let the challenges encountered stop us from advancing in this trajectory. The fundamentals remain strong, and we must maintain the collective belief that this transition is possible.”
Content written by Max Morgene.
