Onshoring is on the rise in Germany

by SCHOLPP

Business units in other countries are increasingly returning to Germany. This has been documented in a recently published study commissioned by the Association of German Engineers (VDI) and conducted by the Karlsruhe University of Technology and the Fraunhofer Institute for Systems and Innovation Research (ISI).

The increasing implementation of digitalization technologies is having a positive effect on the onshoring of production capacities. This was the upshot of companies’ responses when asked about their motivation for increasingly investing here at home again.

“That coincides with the experience of our customers,” said Managing Director Steffen Kühn, confirming this trend. “The more digitalization advances, the more dynamically the economy transforms. When it comes to restructuring locations, relocating production lines, and modernizing factories, the pace is generally rising steadily. We are constantly adapting our service modules and our planning and logistics processes to this development. We are up-to-date, which is in demand in the respective industries.”

Since 2006, the institutes mentioned above have been regularly collecting data on the relocation of production units to other countries. This has fallen from 15 percent (2006) to nine percent (2015), while relocation back to Germany has climbed to three percent (2015). One relationship is clear here: the higher the company’s level of digitalization, the more worthwhile it is to relocate back home. The reason for this is the substantially higher production flexibility and higher labor productivity of digital production processes, which compensate for any wage cost advantages abroad.

When companies decide to digitalize production areas, they usually concentrate the investment at the domestic locations. The presence of high-value IT infrastructure, generally higher production quality, and on-site IT specialists support the decision. This produces further potential in the long term for more value creation in Germany and more knowledge-based jobs. “It was a good decision about five years ago for SCHOLPP to start expanding its competencies and resources in the fields of automation, engineering, and services. As a result, we are well prepared for the tasks assigned to us by our customers in the digital transformation of industry,” continued Steffen Kühn.

According to the study, the highest increase is seen primarily in onshoring from EU countries, which makes up 32 percent of all onshoring activity (2009: 9%). Asian countries (except China) come in second place with 23 percent (2009: 7%), followed by North America (16%), for which current economic policy developments are primarily cited. “We are well positioned to be directly on location for our customers with our own locations in other European countries and in Asian markets, in particular, where there is currently the most movement,” emphasized Steffen Kühn. A current example is a relocation for the Volkswagen Group from Bratislava (Slovakia) to Mosel, near Zwickau (read the related report here).

The motives for relocation that are mentioned by the companies in the study are interesting: flexibility and ability to supply (56%), quality (52%), and capacity utilization (33%) take the first three places. This correlates to the increased use of digitalization technologies in the area of production planning and control, for example, which 67 percent of surveyed companies already use and a further six percent intend to introduce. “Yes, our business is clearly becoming electronics-heavy. There are few industrial service providers that combine mechanical, electrical, hydraulic, and systems electronics expertise under one roof,” noted Steffen Kühn in conclusion. You can find further information and facts from this study here.

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Onshoring is on the rise in Germany
Business units in other countries are increasingly returning to Germany. This has been documented in a recently published study commissioned by the Association of German Engineers (VDI).