That’s 12 Zeros, In Case You’re Wondering
Is your company one of the many organizations thinking of relocating manufacturing operations out of China? Better start looking under seat cushions for spare change, because it’ll cost you.
Bank of America (BofA) has put a price tag to what it could cost U.S. and European companies to shift all manufacturing not intended for Chinese consumption out of China over the next five years. The bank’s research estimates that ambitious exercise would cost (feel free to insert your best Dr. Evil voice here): $1 trillion.
Of course, your organization’s share of that bill would be a mere fraction of that number. BofA analysts said the cost of an individual company taking such action would be “significant, but not prohibitive.” And governments, worried about the impacts of supply chain disruption as revealed by the pandemic, would likely contribute “tax breaks, low cost loans and other subsidies,” BofA hopefully added.
BofA found that 80% of global sectors had faced supply chain disruptions during the pandemic, resulting in more than 75% of organizations accelerating their existing re-shoring plans.
“While COVID has acted as a catalyst to accelerate this change, the underlying reasons are grounded in a shift to ‘stakeholder capitalism,’ concluding relocation favors a broader community of shareholders, consumers, employees and the state,” BofA explained.
How likely are companies to take the drastic step of uprooting their China-based manufacturing operations, whether they move them elsewhere in Asia or back to their home countries? BofA’s Global Fund Manager survey found 67% thought “localization or re-shoring of supply chains would be the most dominant structural shift in the post-COVID world.”
BofA’s analysts said they “expect management and policymakers to aggressively explore ways with which to offset higher costs associated with re-shoring. We don’t expect a silver bullet, but we were struck by the universal declaration [in our survey] of intent to automate in future locations. This was equally true of North American, as well as Asian companies and may be meant to mitigate the higher cost of operation in developed markets and offset lower productivity in emerging economies.”