Skip to main content

Equity Research

Relocation benefits Swiss industry

The disruption of supply chains due to the Covid crisis or the trade war between China and the United States has led to an unprecedented wave of relocation in the industrial sector. Swiss industry is following and benefiting from this trend.

Low-cost countries have a competitive advantage based on lower labour costs, which allows companies to produce goods or provide services at a reduced cost, which is attractive to price-sensitive consumers. Low-cost production was the magic word par excellence over the last twenty if not forty years or so. However, wages have increased around the globe, including in low-cost countries and in addition to this, freight rates have spiked, especially during Covid. Furthermore, the increasing tensions and conflicts between countries over trade policies, particularly between the US and China resulted in consequences such as increased tariffs, which raised the prices of goods and created uncertainty in the global trade environment and ultimately resulted in supply chain disruptions.

Since Covid, most of us have experienced first-hand what disrupted supply chains mean. A product that arrives late or is stuck somewhere in a port in China is not the end of the world for consumers, but it can become very costly if it is the one missing piece in a complex manufacturing process. It is not only about disrupted supply chains, but also labour started to be scarce over the last few years, especially in the US, and wages increased globally. There are manufacturing sites in the US, which were not able to produce goods, as they had difficulties in hiring staff. Being able to deliver suddenly became the new most important competitive advantage and made companies rethink their manufacturing footprint with the ultimate goal to have control over the production process.

One assumes that a valuable lesson learned from the last few years is that a resilient supply chain, and with that the reliable delivery of goods, has a certain value by having closer proximity to customers and markets. Many companies have mentioned over the last few months that they either relocate their own production elsewhere or that they would benefit from companies relocating their production. In Europe, commonly production in the Ukraine or close to the Ukraine had to move elsewhere. In the US, the trend to re-shoring has accelerated. Relocating manufacturing from Asia or Latin America to the US or Europe would at first sight result in higher production costs, as labour in general is more expensive in western countries. It therefore makes sense to invest in new production facilities to make processes less labour intensive and companies will also seek to automate whatever is possible. The expansion of new capacities shifting from China back to industrialised countries has already begun, with new production facilities being built, especially in the U.S.

There are several companies that are benefiting from this shift to the U.S. or to Europe. The most obvious example is the automotive industry, which was hit hard by production stoppages because of certain parts being unavailable. The war in the Ukraine raised the awareness of political risks. For example, a sizable portion of the world's wire harnesses was manufactured in Ukraine but because of the war, production there has been halted and moved to safer locations.

For example, Swiss company Komax, a machine builder for automated wire processing was swamped with orders as a result of this. It is not only located away from politically unstable regions, but new capacities have been installed by the business. Due to labour shortages, especially in the U.S., and wage inflation, Komax's customers are increasingly investing in automation, which is clearly driving Komax's current order momentum. These automation trends are not only happening in the automotive industry but also with nonautomotive customers.

According to “The reshoring initiative”, the US electrical equipment industry related to battery investments was the most dominant reshoring industry in Q3 last year, followed by computers and electronics (including semiconductors and chips), as well as the chemical industry. The initiative observed that in 2022, there have been 61 new factories of semiconductor/chips, with 28,800 jobs announced - most late in the Q3 (and Q4) quarters, following the introduction of the Chips Act. As well as the Inflation Reduction Act, the Chips and Science Act were passed and is being supported with billions being invested.

Sika said at its Q3 revenue call that among others a key revenue generator in the US were near-shoring activities. The same trends have been observed by Bossard, a company that is offering solutions for C-part inventories and revenues are driven by industrial production. Due to Bossard’s business model and its global geographic coverage, further business opportunities should arise for them. How these will materialise from today's point of view, however, cannot be estimated or expressed in targets, but its employees in Asia are noticing and observing that OEMs are increasingly switching to the strategy of producing in China for China and are relocating to India, Thailand, Vietnam and Malaysia or at least considering doing so in order to produce for the rest of the world. Bossard is in the privileged position here to be represented in these countries. Bossard observed also that USA companies, especially since the USA/China trade war, is that in addition to a relocation within Asia, there is also a relocation to Mexico. These are mainly companies in the EMS sector. They have certainly benefitted from this trend.

Important information

Please do not hesitate to reach out to your privileged contact person at Mirabaud or contact us here if this topic is of interest to you. Together with our dedicated specialists, we will be happy to evaluate your personal needs and discuss possible investment solutions tailored to your situation.

Continue to

These articles might interest you

Choose your language