Europe, and indeed the world, has become too dependent on the Far East, said HUP President Mihael Furjan recently. Does this mean that companies, having learned from the experiences of geopolitical and health crises over the past two years, need to reorganize their supply chains? Certainly, all interlocutors will say, the only question is how.
This depends on each case specifically, but generally speaking, crises and a concerning labor shortage will force European companies to shorten supply chains and relocate production, as well as to modernize automation and digitalization using artificial intelligence.
That this is not easy to implement is clear also because no supply chain stakeholder is a lonely link or an island in the entire supply chain from producer to end consumer, says Ivica Pivar, Executive Director of the supply chain at Tokić. The matter is about the availability of resources, market conditions, and partners with whom companies do business (as neighboring links). In ideal conditions, the best supplier is the closest one, but many other factors influence business cooperation, such as the quality and reputation that companies create in their relationship with suppliers.
Turning Towards Europe
It is clear that everything depends on what you do. For example, there are companies that are already oriented towards Europe or the region. Zoran Šimunić, owner and director of Naše Klasje says that regardless of past crises, they must ensure that they offer customers fresh products with a relatively short shelf life, which is why they have been focused on short supply chains from the beginning. Press Glass is also ‘condemned’ to sourcing in Europe, adds CEO Igor Vlahović. As a processor of flat glass, the company does not source this raw material from the Far East because, as a bulk commodity, it is not suitable for overseas transport due to its dimensions.
Regardless of whether significant quantities of raw materials are produced in Europe or not, he emphasizes that producers in the Far East, especially in China, will not be as competitive with Europeans as is assumed, at least when it comes to basic raw materials. True, due to disruptions in the energy market, European products are indeed less competitive, but replacing raw materials produced in Europe with those from outside will not be so quick because, in addition to energy prices, transportation costs have also risen (although they are somewhat lower now), which is not a small share of the cost.
– In addition, European regulations on meeting quality standards and compliance with European norms, and soon, ESG standards for competition outside Europe will often be an insurmountable obstacle – says Vlahović.
Let us add the recently adopted European Union regulation on deforestation, which obliges companies not to incorporate raw materials that have caused deforestation into their products sold in the Union. For example, soy that has been planted on land where forests have been cleared will not be able to be imported, which will force companies to change suppliers of raw materials that do not comply with this regulation.
How important the orientation towards Europe is, explains Zrinka Hauser, supply chain director at JGL, who says that they have been using alternative transport routes in the recent period. For example, the war in Ukraine changed the model of delivering goods to that country: now customers are sold directly in the western part of the country, and they no longer have goods in consignment warehouses.
