China is no longer in focus: European companies seek new markets in Asia and work on localizing their value chains

Due to rising geopolitical uncertainty and associated risks, supply chain issues, and high compliance costs with sustainability criteria and regulatory requirements abroad, an increasing number of companies are intensively reassessing their business structures outside of Europe.

A recent survey involving 150 top managers from companies with annual sales of at least 200 million euros across all industries throughout Europe showed that most of the surveyed companies currently operating in China plan a gradual or partial withdrawal from that country, although, when seeking an alternative to China as a manufacturing location, no country emerges as a dominant leader, the statement said.

Of the surveyed companies with relevant business activities in that country, more than 60 percent are already working on relocating their operations, gradually or partially.

Additionally, managers see India and Japan as new markets in Asia, followed by Singapore and South Korea. Most companies in Europe plan to further localize their value chains in their sales markets, with as many as 85 percent of surveyed companies planning to intensively connect the chain ‘from production to sales’ within the respective sales markets (the so-called ‘local for local’).

– The European economy is responding to current challenges by adapting its structures, so most companies will intensively localize their value chains in the future. Europe is regaining importance as a market for both procurement and production in many industries, such as in the production of battery cells for local sales in the electric vehicle market. However, this does not mean closing off to non-European markets. Industries that rely on raw materials and energy sources outside of Europe cannot operate without supplier countries, and it is clear that the appropriate procurement channels and production structures cannot simply be moved overnight. In many industries, this will take several years – said Robert Ćuzela-Piljac from the consulting firm Horvath.

Europe tops the list of the most promising potential markets for 66 percent of respondents, but of the companies planning to open new markets in the next three years, nearly half of the respondents are focused on Asia (47 percent), followed by North and South America with 37 and 33 percent, respectively. At the bottom of the list of interesting potential markets are the Middle East, Africa, and Australia.