Bringing Production Back to Europe: Restructuring Supply Chains

4 min Read Time

86 percent of surveyed German companies plan to reshore or nearshore operations to make their supply chains more resilient. 84 percent intend to invest in robotics and automation to offset higher labor costs. The pandemic, geopolitical tensions, and rising transport costs have shattered the illusion of cheap global production – triggering a wave of reindustrialization that directly impacts Germany.

The Key Takeaways

“What’s new is that companies are actually investing – not out of conviction, but out of experience.”

Why This Time Is Different

The reshoring debate isn’t new. For two decades, studies have warned about the risks of global supply chains. What is new is that companies are now acting – not because they’re ideologically convinced, but because real-world events have forced their hand.

Covid revealed what happens when container ships get stuck in the Suez Canal. The war in Ukraine exposed the perils of energy dependence. The Taiwan Strait crisis underscored the danger of sourcing 90 percent of advanced chips from an island China claims as its own territory. Germany’s Hidden Champions feel this dependency most acutely – their highly specialized supply chains are far more vulnerable than those of broadly diversified conglomerates.

According to a Capgemini study, 47 percent of large European and U.S. companies have already invested in reshoring. Seventy-two percent are developing a reindustrialization strategy. Planned investments total $4.7 trillion over three years.

ESMC and PowerCo: Flagship Projects

Germany’s largest reshoring initiatives are also its most strategically vital: semiconductors and battery cells. ESMC in Dresden – the joint venture between TSMC, Bosch, Infineon, and NXP – is investing over €10 billion in Europe’s first TSMC chip fab. Production begins at the end of 2027. The chips? Automotive and industrial electronics – the very segments where Europe’s chip dependency runs deepest.

VW PowerCo is building an EV battery factory in Salzgitter – the automaker’s largest single investment in Germany in decades. Meanwhile, CATL operates Europe’s first gigafactory by a Chinese battery manufacturer in Erfurt, with a capacity of 14 GWh. The message is clear: critical components for electromobility will increasingly be manufactured in Europe – not just imported.

“Business leaders are accelerating strategic initiatives to strengthen supply chain resilience, restore national security in key sectors, and reclaim industrial strength. This is a structural shift.”
– Roshan Gya, CEO Capgemini Invent, Capgemini Reindustrialization Report 2024

The Limits of Reshoring

The ifo Institute warns: fully relocating all supply chains back to Germany would cut GDP by 9.7 percent. Division of labor isn’t a flaw – it’s a foundational principle of efficient economies.

The intelligent strategy isn’t “bring everything home,” but “reduce critical dependencies.” Semiconductors, batteries, active pharmaceutical ingredients – reshoring makes sense here. T-shirts, consumer goods, standard electronics – not so much. Meanwhile, the energy transition boosts location attractiveness: cheaper green electricity lowers operating costs for reshoring-friendly factories.

Then there’s the wage-cost trap: wages in Central and Eastern Europe are rising 3.5 times faster than productivity. Nearshoring to Poland or Hungary isn’t a long-term fix if cost advantages vanish within a few years. The most sustainable response is automation – and that’s exactly what 84 percent of reshoring-minded companies plan. But those who overlook digital resilience in their new supply chains simply trade one risk for another.

Frequently Asked Questions

Further Reading

• Europe’s Chip Offensive: What Comes After Intel’s Exit – MyBusinessFuture
• Supply Chain Security 2026: How Companies Protect Their Software Supply Chains – SecurityToday
• Edge Computing and Industry 4.0: Germany’s Quiet Cloud Revolution – cloudmagazin

Header Image Source: Pexels / EqualStock IN