Getting ready for Europe’s re-industrialization

Three global shocks – two massive, one localized and temporary – have forced especially European companies to rethink their supply chains.

During the past two years, the Covid-19 pandemic has shown us how fragile global supply chains are, although there have been other warning signs, like the temporary closure of the Suez Canal or disruptions in the aftermath of large-scale natural disasters. Now it is the war in Ukraine that has triggered yet more economic repercussions that affect businesses and consumers alike, such as the threatening of world’s supplies of both energy and food.

Of course, it is the horrific loss of life – from both the virus and the war – that must be top of mind. However, we also have to think how we can mitigate other serious problems, from the destruction of jobs and livelihoods to issues like inflation, which squeezes budgets and devalues people’s life savings.

A global switch from efficient to resilient supply chains

One conclusion is obvious: executives and board members of companies have to take a long, hard look at the resilience of their supply chains – regardless of whether they are consumer-facing businesses or manufacturers of industrial goods. Extended supply chains have been shown to come with a new level of risk. It’s simply not good enough to cross corporate fingers and hope that the next major disruption is a long way away.

It's not a new debate – but this time it’s different

Anyone in business during the past couple of decades or so will have lived through the big debates about the off-shoring of services, followed by yet more discussions whether near-shoring or even home-shoring would actually be better. In my opinion, it’s an issue that was never made for simple answers: what worked for one business probably was not the right approach for another; what was the obvious solution for one service turned out to be a costly blunder for the next.

What the debate got right, however, was this: it forced companies to ask themselves important questions. How does offshoring affect the customer or product experience? What does it mean for an organization’s skills mix? Which technologies are agile and flexible enough to provide long-term solutions? Are they resilient? And what’s the overall cost, not just in terms of operating and capital expenditure, but also its impact on long-term customer relationships?

In light of the disruptions seen during the past two years, any previous risk assessment will be out-of-date. Supply chains will have to be shortened, if only for resilience’s sake. Most importantly though, in the long-term the proven fragility of today’s supply chains will only be the trigger, not the main driver of the disruption of manufacturing.

The drivers of re-industrialization

There are three even bigger trends that will soon force companies to fundamentally rethink not only their global supply chains, but also how and where they manufacture. I am certain that these trends will ultimately lead to a re-industrialization of Europe. This, in turn, poses another challenge: companies have to make sure their workers have the skills needed for this transition.

One of these trends are driven by innovation: automation technologies in manufacturing are completely changing the fundamentals of labor cost in manufacturing; and emerging technologies like 3D printing will soon reach the quality and scale standards of mass production. In many instances, manufacturing parts or products in far-away low wage economies and shipping them to Europe will not make sense anymore – both in terms of cost and sustainability. Global supply chains consisting of only one huge factory in a low-cost production site will soon be history.

Arguably the most powerful driver for Europe’s re-industrialization, however, will be the trend towards mass customization. From market to market, and from individual to individual, consumers want products that are perfectly tailored for their needs, tastes or lifestyle choices. This requires a level of agility and flexibility in manufacturing that cannot be met with mass manufacturing underpinned by lengthy supply chains. Take something as simple as a soft drinks bottle. Some consumers may prefer a green half liter bottle; others will insist on a larger one liter bottle, but it should be blue; maybe they want a bottle in the colors of their local sports team, or shaped like a popular cartoon character. Now take this concept and apply it to home appliances, sports shoes or any other product. This may sound like a dream of the future, but we are already seeing it in many industrial sectors: the expectation that products – including industrial equipment – will be tailored to the individual, to the user. This will be accelerated in part by the fact that some consumers will base their purchasing decisions on where a product was made. And many more will pay attention to whether what they buy was also produced "sustainably". The changing consumer behavior will lead to the fact that soon, consumers will expect every sports shoe, every smartphone and so on to have a label that shows exactly what that product's carbon footprint is - end-to-end, from materials and production to packaging and logistics. The result is a manufacturing economy that has to be as close to the consumer as possible – with a manufacturing set-up that is as agile and flexible as the world’s constantly changing tastes and the global speed of innovation.

Europe needs new industrial skills sets

The re-industrialization of Europe will not create anything like the industries of old. The new manufacturing facilities will be high-tech and rely on employees that have a mastered a combination of creative, digital and engineering skills.

This leaves Europe with a skills gap. To fill it requires a concerted effort. Companies will have to pool resources, knowledge and demand for talent, so that they can build the right training facilities. In Berlin, for example, ABB is partnering with 150 companies from across the region to run a training center that provides hundreds of students and apprentices with highly specialist skills. Only thanks to this kind of collaboration can we gain the scale to run training facilities with the most cutting-edge machinery and robotics solutions. Our training center offers vocational training for 18 job qualifications, across electronics, metal working, technical design and digital engineering.

Providing this kind of training, however, requires more than collaboration. As Europe re-industrializes, both companies and workers need to get into a new learning mindset. The digital, creative and engineering skills that we need to near-shore and home-shore manufacturing must be kept up-to-date at all times. In countries like Switzerland and Germany, apprenticeships – with their unique integration of work and formal learning – typically take three years to complete. For Europe’s re-emerging manufacturing industries to succeed, we need to take this concept and expand it. Ultimately, we will have to see everyone’s job as one long apprenticeship of working and learning.?