Europe brings back industrial production: The New Wave

The relocation of industrial and manufacturing companies, which began in Europe and the US in the wake of the healthcare crisis, is gaining momentum and is only predicted to intensify in the coming years. According to a Capgemini study, the main reason for this mass relocation of industrial groups in both Europe and the US is the search for more reliable supply lines. The study also notes that as a proportion of GDP, France's reindustrialisation efforts (13% of GDP) are almost three times that of the US (5%).

In February, Capgemini surveyed 1,300 senior executives from industrial groups with more than a billion dollars dollars in annual sales in European and US countries such as Germany, Denmark, Spain, Finland, France, UK, Italy, Norway, Netherlands and Sweden. The study describes a ‘true wave’ of re-industrialisation spanning all the countries and industries studied. As well as seeking to improve supply line resilience, driven by shortages of goods during the health crisis, companies are also motivated by geopolitical tensions and a desire to reduce CO2 emissions. European companies are particularly active in investing in re-industrialisation, as evidenced by their increased investment in strengthening production capacity.

Re-industrialisation investments in Europe and the US over the next three years are estimated at 3,400 billion dollars, equivalent to 8.7% of the sales of the companies concerned. This is significantly higher than the 2,400 billion dollars invested in the previous three years. In Europe in particular, there is a drive to bring manufacturing back to the continent, fuelled by both public initiatives and private investment. The reindustrialisation efforts of France and Germany are particularly visible against this backdrop of change, confirming the importance of strategic investment in the industrial sector.

Growing investment in re-industrialisation: causes and magnitude

According to the study, the total investment planned by companies from 13 industrial sectors in 11 countries to strengthen their production capacity will reach 3,400 billion dollars over the next three years, an increase of 1,000 billion dollars over the previous period. These investments, equivalent to 8.7% of companies‘ sales, are aimed at both bringing production back to their home countries (’reshoring‘) and relocating them to neighbouring regions (’near-shoring"). The main reason for the increased investment was the companies' desire to improve the resilience of supply lines following the disruptions caused by the health crisis.

In addition, geopolitical instability such as conflicts in Ukraine and the Middle East, the desire to reduce CO2 emissions, including indirect greenhouse gas emissions, as well as financial incentives and support for government reindustrialisation policies, also influenced companies' decisions. Some 63% of respondents noted the impact of geopolitical tensions, while 55% emphasised the importance of environmental goals. Finally, 49% of managers pointed to the importance of financial incentives and government support in the reindustrialisation process.

Reindustrialisation in Europe: Leaders and challenges

France and Germany have been more proactive in reindustrialisation than the US, committing significant resources. France has allocated 13% of GDP to bringing back manufacturing, launching a €1 billion dollars programme in 2020 to rebuild industry after the pandemic. Germany, for its part, is devoting 20% of GDP to re-industrialisation, four times more than similar US efforts. These investments are aimed at strengthening economic independence and bringing back strategically important industries.

Despite strong action, there are concerns about the effectiveness of the funds. The French Court of Auditors has expressed concern about the possible inefficient allocation of public funds and the risks of unjustified profits. While the US is passing the Inflation Reduction Act (IRA) with generous subsidies for strategic sectors such as electric vehicles and batteries, European countries see this as a threat to competition. Nevertheless, France and Germany continue to invest heavily in industry in a bid to strengthen their position in the global market.

Support for defence industries in France

In France, public authorities are supporting around twenty projects to relocate defence-related industries as part of a ‘war economy’ project designed to meet the needs of Ukraine and the new geopolitical situation. These projects include the return to France of the Eurenco shell powder production facility and the creation of a 250kg bomb casing production line in Aresia, as well as the construction of a 3D printing module production plant in Bourges. These initiatives are aimed at strengthening the country's defence capabilities and restoring lost industries.

Reindustrialisation and security in Europe

In Europe, projects to relocate and reclaim industries are being actively supported as part of a strategy to strengthen national security and adapt to changing geopolitical conditions. Many countries, such as Germany and Italy, are focusing on restoring lost production capacity, especially in strategic defence and high-tech industries. These efforts include creating new production lines, modernising existing facilities and developing additive technologies such as 3D printing to accelerate the production of key components.

European governments are actively investing in such projects, providing subsidies and tax incentives to encourage manufacturing to return to the continent. These measures are aimed not only at improving economic sustainability, but also at ensuring Europe's technological independence from external supplies. As a result, building up defence capabilities and rebuilding key industrial chains have become priorities for many countries seeking to strengthen their security in the face of global challenges.

Conclusion

Europe is actively regaining lost manufacturing capacity, which strengthens its economic and technological independence. These efforts reflect the importance of reindustrialisation for security and competitiveness in the global arena. Reindustrialisation in Europe will only gain momentum in the coming years, contributing to the continent's sustainable development.