Horváth-Study: Companies in Europe are working hard to localize their value chains

As a recent Horváth study on deglobalization tendencies shows, a large majority of companies in Europe are planning to further localize their value chains in their respective sales markets. Across all sectors, 85 percent of the companies surveyed said they planned to bundle their structures from production to sales more intensively within the respective sales markets in the future ("local for local"). Of the companies surveyed with relevant business activities in China, more than 60 percent are working specifically on relocating these activities, either gradually or partially. Above all, India and Japan are viewed as possible new Asian focus markets, followed by Singapore and South Korea. For the study, 150 top executives from companies with annual sales of at least 200 million euros across all industries throughout Europe were surveyed in August.

Many companies are currently scrutinizing their business structures outside Europe. The main reasons cited by the European executives who took part in our study were sharply increasing geopolitical uncertainty and the associated risks, as well as supply chain problems. High costs for compliance with sustainability criteria and regulatory requirements abroad are also playing a central role.

"The European economy is responding by adjusting its structures. Most companies will localize their value chains more intensively in the future. Europe is regaining importance as a procurement and production market in many industries, for example in the production of battery cells for the local sales market for electric vehicles," says Helmut Ahr, CEO of the management consultancy firm Horváth. "However, this does not mean closing oneself off to non-European markets. Industries that rely on raw materials and energy sources outside Europe cannot do without supplier countries in other economic areas. Even for important supplier parts, the respective procurement channels and production structures can't simply be relocated overnight. In many cases, this will take several years."

Majority of companies are simultaneously focusing on new market potential outside Europe

Of the companies that are planning to open up new markets in the next three years – that's seven out of ten – a large majority also want to leverage potential outside Europe (85 percent). However, their internationalization strategies and global footprints will need to be adjusted accordingly. Europe is at the top of the list of the most promising potential markets at 66 percent. Nevertheless, almost half of respondents are now (even more) focused on Asia (47 percent), followed by North and South America at 37 and 33 percent respectively. The Middle East (26 percent), Africa (17 percent), and Oceania (11 percent) bring up the rear among the most interesting potential markets.

No clear replacement market for China – the trend is toward diversification

The study also shows that most of the surveyed companies with business activities in China are planning a gradual or partial withdrawal from the People's Republic. Sixty-two percent plan to relocate their China-based activities to other countries. "When asked about alternatives to China as a production location, however, no particular country emerges as the clear front runner," says Horváth CEO Helmut Ahr. Above all, the participating European executives view India and Japan as possible alternative production locations, followed by Singapore, South Korea, Taiwan, and Indonesia. "In our consulting practice, we are also increasingly seeing relocations from China to Vietnam and Cambodia, and in the textile industry to Bangladesh or Pakistan. This trend will continue," says Ahr. "For a resilient setup, it is in any case advisable not to put all your eggs in one basket in the future and instead to diversify." Leading economists are also warning against a long-term and complete turn away from China.

About the study

For the current Horváth study on deglobalization tendencies, a total of 150 top managers from six European core markets were surveyed. These executives are employed by companies across all industries with annual sales of at least 200 million euros. The interviews were conducted in August 2022.