In recent decades, many Dutch manufacturing companies have chosen to outsource their production activities to countries with lower wages. This strategy, known as offshoring, offered companies the opportunity to reduce costs and gain competitive advantage. However, in recent years a remarkable trend has been observed: some Dutch production companies are now returning their production to their own soil. In this article we look at the reasons why Dutch companies opted for outsourcing to low-wage countries in the past and why a growing number of companies are now opting for reshoring, or bringing production back to the Netherlands.
Outsourcing to Low Wage Countries: The Early Years
In the late 20th century, Dutch manufacturing companies began to move their production processes to countries with lower labor costs. This phenomenon, known as offshoring, was driven by the search for cost savings. Labor was often the largest cost for manufacturing companies, and moving production to countries where wages were lower offered significant savings.
In addition, low-wage countries were often willing to offer favorable tax schemes and other financial incentives to attract foreign investment. This made the decision for Dutch companies to locate their production elsewhere even more attractive.
Globalization and Access to New Markets
In addition to cost savings, Dutch production companies also saw outsourcing as an opportunity to gain access to new markets. By moving manufacturing operations to emerging economies, companies could benefit from local market knowledge and a growing consumer base. Sometimes local legislation also required that one's own production had to be started in the country. This opened the door to new sales opportunities and helped companies become more competitive globally. Changing Economic Landscape and Risks
Over the years, some companies began to experience the disadvantages of outsourcing. The economic landscape in low-wage countries evolved, with some of these countries seeing their wages rise and their competitive advantage diminish. In addition, companies faced logistical challenges, communication problems and quality management issues inherent to managing production remotely.
In addition, geopolitical tensions and natural disasters posed risks to the supply chain. Companies began to realize the fragility of their global supply chains and looked for ways to create greater resilience and stability.
The Rise of Reshoring
To respond to the challenges and risks of outsourcing, some Dutch manufacturing companies are now opting for reshoring, bringing production activities back to the Netherlands. There are several reasons for this shift.
Quality Control and Innovation
One of the main reasons for reshoring is the need for improved quality control and innovation. Companies recognize that maintaining control over the production process is essential to ensure the quality of products. Moreover, it enables companies to respond more flexibly to changing market demands and to quickly implement innovations.
Digitalization and Automation
The rise of advanced technologies, such as digitalization and automation, has increased productivity and reduced dependence on cheap labor. Dutch companies invest in advanced production technologies to produce more efficiently and become more competitive.
Sustainability and Corporate Social Responsibility
Reshoring also fits well with the growing attention for sustainability and corporate social responsibility. By bringing production activities closer to home, companies reduce their carbon footprint through shorter transport distances and reduced CO2 emissions.
Complex but feasible
The shift from outsourcing to reshoring at Dutch manufacturing companies is a complex process driven by various factors. While cost savings were originally the driving force behind outsourcing, changing economic landscapes, risks in supply chains and the need for quality control and innovation have led to a rethink of this strategy. Reshoring not only offers benefits in terms of quality and innovation, but also fits well with the growing emphasis on sustainability and corporate social responsibility. Dutch manufacturing companies face the challenge of striking a balance between cost efficiency and creating resilient, sustainable supply chains that enable them to thrive in an ever-changing global economy.
