Evidence on reshoring

There is no worldwide database on reshoring. The European Union collects cer-tain data and there are country-specific databases (in the USA⁵ and in Italy for example). There is a „restructuring events” database of the European Restruc-turing Monitor⁶. It contains data on major restructuring events reported in the principal national media in each EU member state since 2002. In order to be included in the database, an individual case must involve the announced loss or creation of at least 100 jobs, or employment effects affecting at least 10% of a workforce of more than 250 people. There are several types of restructuring including bankruptcy, closure, relocation, offshoring/delocalisation, outsourcing.

Dima (2018) analyses the restructuring monitor’s relocation data between 2002 and 2015 and shows that Poland figures as an important destination for reshoring, and all the operations related with the country are of nearshoring type. Among other such frequent destinations are Romania, Hungary, Czech Republic and Slovakia. Germany is a relevant destination for reshoring events and here back-shoring is also frequent.

A narrower database is the European Manufacturing Survey (EMS) 2015 that includes 2,120 manufacturing firms from Austria, Germany and Switzerland with at least 20 employees. The EMS measures backshoring with a question if the firm has relocated production activities from own affiliates or from suppliers back to the home country during 2013 and 2014.

The mentioned databases can show mostly the quantity and trends of reshoring.

Regarding the motives in detail we can rather rely on surveys, studies, interviews and press information. Based on these we can have certain “country case studies”

illustrating the major reshoring economies.

In this paper I analyse the data of the European Reshoring Monitor. It developed from an inter-university database (Uni-Club MoRe Back-reshoring data set)⁷. It collects information on individual reshoring cases from several sources (media, press, scientific literature) and maintains a regularly updated online database. Active data collection for the reshoring monitor began in February 2016 and some earlier reshoring cases (2014–15) have been identified from earlier data collection activities. Data collection ended in December 2018⁸. The monitor also contains an online database of reference material on reshoring (articles, reports). In the description of each case there are some words also on the motives of reshoring. The reshoring cases show that the European countries that

most actively reshore are the UK, Italy, France, Skandinavian economies and Germany.

Figure 1 shows the most important motives declared by reshoring companies in the European Reshoring Monitor database. Automation of production is the third most important reason.

Figure 1. Motives of reshoring

Source: Compilation from European Reshoring Monitor (2014–2018).

There are 23 backshoring cases from the Visegrad countries (15 from Poland, 4 from the Czech Republic, 4 from Slovakia, see Table 1). The most often men-tioned reason here (9 times) for backshoring is „automation of production pro-cess”. Other motives like „delivery time”, proximity to suppliers”, „firm’s global reorganization”, „streamlining of supply chain”, „greater flexibility, „logistic costs” all can be considered as one group concerning more efficient supply chain management. This kind of reasons were mentioned 16 times (in certain cases to-gether with automation). As a third kind of motive „poor quality of offshored pro-duction” was mentioned 4 times.

Regarding the home countries it is only one case when backshoring from the Visegrád area took place to Germany, but there are 5 cases to Norway, 4 cases to Denmark, 3 to the UK and 2 to Finland. There is one backshoring to Spain (from the Czech Republic) and one to Poland (from Slovakia).

0 10 20 30 40 50 60

Table 1. Summary of reshoring cases concerning the V4 countries 2014–2018 Backshoring from V4 Backshoring to V4 Nearshoring to V4

No. of cases 15 from Pol

If labour factors deteriorate in the region, certain investors can be motivated to reshore or move to other regions from here. There are examples of replacing labour-intensive and not automable functions from Hungary to cheaper countries.⁹

Backshoring of previously offshored production can take place also if the mother company is from the Visegrád countries. There are seven such cases, six backshoring to Poland (from China, Slovakia, Serbia, Germany, Sweden) and one to Slovakia (from the Czech Republic). We cannot find automation as a motive here.

Considering nearshoring to the Visegrád countries, German companies proved to be the most active. The survey by Müller-Dauppert (2016) illustrates this. The sample consists of 71 German firms and 54.9% of the respondents already used nearshoring as location strategy for their production plants. 22.4% of the participants consider nearshoring as a relevant future trend. Nearshoring is chosen based on costs, but the delivery time and the availability of qualified employees play also an important role. Central-Europe proved to be the most relevant region for nearshoring.

Lőrincz (2018) enumerates some further reasons why the CEE region can be favourable area for nearshoring of West-European firms. These are for example geographical and cultural proximity, same time zone, lower costs. Placing business in a nearby country enables face to face meetings, that can ease problem solving and building mutual trust. Eastern European specialists may be more expensive than Indian ones, but it is compensated by fewer mistakes and misunderstandings at work. It is difficult to cooperate with people with poor English or a strong accent.¹⁰

There are also certain economic policy elements that can enhance nearshoring.

The very low, 9% corporate income tax rate in Hungary is a good example. In

9 The Austrian-owned Prevent Premium closed in 2017 in Hungary. The firm produced car seat carpets, 300 workers were laid off and production moved to Bosnia. Another example is Lear Corporation that moved in 2017-18 labour-intensive car seats and electronic car parts production to lower cost countries from Hungary and automated at the same time in the US and Germany.

10 https://euvic.se/se/nyheter/nearshoring-is-gaining-popularity-why+&cd=1&hl=hu&ct=clnk&gl=hu

2015–2018 Hungary experienced an increasing FDI inflow and very high reinvested earnings¹¹ stemming mainly from European investors. Favourable fiscal conditions thus promote reinvestment of profits and nearshoring too.

The severe labour shortage in the V4 is also an incentive for automation of the production process and digitalisation of nearshored plants. Eurostat registers job vacancies and the job vacancy rate provides a comparative indicator for the Visegrád countries (see Figure 2).

Figure 2. Job vacancy rate

Note: The job vacancy rate (JVR) is the number of job vacancies expresses as a percentage of the sum of the number of occupied posts and the number of job vacancies: JVR = number of job

vacancies / (number of occupied posts + number of job vacancies) x100 Source: Eurostat

Most job vacancies are in the Czech Republic and the second most serious case is Hungary. Labour shortage become more and more a barrier to proper business conduction as several company surveys show. Apart from that, there has been an accompanying significant (30–40%) wage increase since 2012 in these countries.

In the European Reshoring Monitor we can find seven nearshoring cases to the Visegrád countries. The mother companies are from Germany, Sweden, Denmark,

11 Reinvested earnings are the portion of income due to the owners of equity in addition to distributed income (dividend). The difference between the positive or negative adjusted profit after tax and the dividend declared in the period concerned is reinvested earnings.

0,0 1,0 2,0 3,0 4,0 5,0 6,0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Czechia Hungary Slovakia Poland

USA.¹² The previous offshoring took place in China, Australia and one in Switzerland. Production was reshored from these places to Poland (4 cases), Slovakia (2 cases), Hungary (1 case). In one case automation was mentioned. The Danish JYSK decided to reshore from China to Poland due to rising costs in Asia, greater automation of production and shorter ordering time.¹³ (There is a further case of the Taiwanese Pegatron Corporation shifting electronics production from China to the Czech Republic, which is not “nearer”, but the cause of reshoring here were avoiding the US tariffs introduced for Chinese products.¹⁴)

Summarizing the reshoring types (Table 1) it can be stated that backshoring from the Visegrád countries (mostly from Poland) because of automation of production proved to be much more relevant than nearshoring to the Visegrád countries.