MNCs to Relocate Production Facilities to Friendlier Nations: ECB

According to a paper released on November 6, over 40% of multinational companies surveyed by the European Central Bank anticipate moving their production to countries that display political amicability in the upcoming years. The primary concern mentioned is the risk associated with China. There has been a growing conversation among firms about shifting production sites due to the upheaval caused by the pandemic and Russia's war in Ukraine, which has disrupted value chains. However, there is a lack of concrete evidence to support the notion of widespread relocations.

In the quest for concrete validation, the ECB conducted a survey among 65 prominent multinational corporations. Surprisingly, almost half of them (49%) expressed their intention to "near-shore" their operations, relocating production closer to the proximity of their sales points. A total of 42 percent expressed a desire to "friend-shore" certain operations or relocate them to friendlier locations.

"As to those countries which posed – or could pose – a risk to supply chains in their sector more generally, two-thirds of all respondents cited China," the ECB said in an Economic Bulletin article.

More than half of the firms sourced critical materials from a specific country or a small number of countries, and nearly all said that these supplies now faced elevated risk.

"A large majority of these identified China as that country, or one of those countries, with all of them considering this an elevated risk," the ECB added.

In recent years, near-shoring has become increasingly popular. However, a new phenomenon called friend-shoring has emerged, with only 11 percent of people stating that they have been adopting this strategy in the last five years. The European Union is anticipated to suffer from corporate movements as more companies are expected to relocate their production outside of the bloc rather than moving it in. This imbalance in movements could have a substantial effect on employment within the EU.