Shifts in Location Drivers to Shape Global Manufacturing Landscape

Market opportunities, the search for talent and business disruption concerns top the priority list when determining where to set up or expand facilities.

A new report by Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI), “Footprint 2020: Expansion and optimization approaches for U.S. manufacturers,” examines the trends driving global manufacturing footprint shifts and explores the next generation of locations manufacturers are considering.

The report projects where firms will be making investments in their manufacturing footprint in the next five years and how drivers for these investments are shifting.

According to the report, over 50 percent of respondents plan to enter new markets by 2020 and they anticipate a shift toward locations that can support and provide access to the latest technological advances. Access to a strong talent pipeline will also be a major driver of location choice, as measured by a market’s investment in the local educational infrastructure.

Since 2008, investments outside of companies’ existing footprint are dominated by countries in Asia and South America. However, countries with a strong talent pipeline that can provide access to the latest technological advances and educational infrastructure are projected to see increased investment between now and 2020. This represents a shift from a traditional focus on regulatory climate and physical infrastructure.

In parallel, China and the United States are expected to receive the highest number of investments by manufacturers planning to optimize operations in countries with existing activities.

The report indicates locations emerging as targets for investment include South Africa, Turkey and Vietnam. These markets are increasingly drawing attention due to their growing middle class and rising spending power. Meanwhile, while some respondents appear to lag in terms of their entry into Brazil, China and India, many plan to expand their footprint into these markets in the coming years.

What is driving investment?
For the top countries identified as targets for future investment, the main focus for companies is to serve new markets, not only because of the size of the consumer base (e.g., Brazil, China, India), but also because countries, such as Brazil, have imposed barriers that make it cost prohibitive for companies to serve those markets from the outside.

Interestingly, China entrants appear to be drawn to availability of talent, growing market opportunities and favorable logistics, instead of traditional cost reduction opportunities.

Brazil, Turkey, and South African investments are primarily due to sizable local markets with growing middle class.

Poland offers investors a favorable physical location, moderate cost structure relative to the rest of Europe and access to high quality technical talent.

Sixty-six percent of survey respondents offshored their operations in the past 20 years, and a third are now considering bringing them back to North America. These moves focus on primary production and assembly operations currently located in China, India, and/or Brazil. Mexico is the first choice destination to re-shore operations, followed by the United States.

As manufacturers contemplate entering new markets, expanding existing manufacturing locations or reshoring portions of their production, the optimization of their footprint strategy will necessitate flexibility. To keep pace with today’s complex environment and ensure their assets are aligned to changing market conditions, they will have to consider forward-looking footprint strategies.

Download the complete report.