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Low-cost Eastern Europe Wins As Firms Rethink Supply Chains

Low-cost Eastern Europe wins as firms rethink supply chains

Low-cost Eastern Europe wins as firms rethink supply chains

Romanian Prime Minister Nicolae Ciuca and South Korean Prime Minister Han Duck-soo (both not seen0 in a signing ceremony in Bucharest, 10 May 2023. [EPA-EFE/ROBERT GHEMENT] Low-cost economies in eastern and southern Europe are being increasingly favoured for investment as companies around the world revamp supply chains to make them more resilient and cost-efficient, a study by professional services group EY found. The finding came as foreign direct investment (FDI) into Europe as a whole last year stalled, with inflation, soaring energy costs and the aftershocks of the Ukraine war dampening interest. The EY study, based on its in-house project tracker and a field survey carried out earlier this year, found the number of investments launched in Portugal during 2022 jumped 24%, with Poland up 23%, Italy up 17% and Romania up 86%. “This redirection from West to South and Eastern regions is at least in part due to the reconfiguration of global supply chains, as well as an inclination toward cost-competitive European locations for manufacturing and back-office operations,” said EY EMEIA Area Managing Partner Julie Teigland. Trade disruptions caused by the pandemic and in some cases exacerbated by war and geopolitical tensions have been cited as reasons why companies should look to make their supply chains shorter and more resilient to shocks. The EY survey showed such moves were still going on, with 52% of companies who responded saying they were creating more regional supply models, 47% near-shoring closer to customers and 46% reshoring activity back to their domestic markets. Teigland said that while this showed companies were heeding calls to “de-risk”, it was unlikely to lead to all-out exits from China despite rising trade tensions with the West. “Companies cannot ignore China … But they can make sure that not everything is controlled by, or runs through China – and that is what they are doing,” she said. As a whole, the number of FDI projects launched across Europe last year stood at 5,962, up just 1% from the year before. However the number of jobs these projects created dropped 16% to around 344,000. Aside from south and east Europe, low-tax Ireland was the other stand-out with a 21% rise in FDI projects as, despite efforts to create a global minimum corporate tax, it was still seen as broadly pro-business. Unsurprisingly, the region’s three largest economies – Germany, France and Britain – continued to attract the bulk of FDI into Europe. Britain, however, saw a 6% fall in the number of projects launched amid concerns about trade snags and labour shortages due in part to its decision to leave the European Union. “The UK is the most disrupted,” said Teigland. “Brexit has had a negative impact.” Read more with EURACTIV

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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