Article | Evolving Workforces

Manufacturing in the Era of Uncertainty

Why footprint realignment is critical for manufacturers in today’s world

April 4, 2023

By Namrata Kaul Udit Sabharwal Rashid Yusoff

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Since the onset of the pandemic, manufacturers have found themselves thrust into an era of uncertainty. Business leaders are now more than ever invested in location optimisation. The pandemic exposed manufacturers to supply chain challenges, concentration risk and labour market shortages among other trends. This new era is unlikely to be linear. Manufacturers need to chart their own course as they look to optimise their footprint, navigate ongoing macroeconomic uncertainty and continue to remain profitable.

The pandemic’s disruption of manufacturing

The pandemic was just the start. Manufacturing has never been this disrupted. Inflation, de-globalisation, geopolitical tensions, footprint concentration and supply chain disruptions have made for an exotic cocktail that caught the manufacturing sector unprepared. Global shocks over the past three years have led businesses to think more seriously about distributed manufacturing across the Asia Pacific region, which makes up nearly half of all global manufacturing output. 

Moving away from Myopic Location Strategies 

The core drivers for manufacturing location selection have changed, and they are no longer focused on myopic problems. In our view, companies that recognise and embrace the overarching “long-term foundations” are well positioned to capitalise on potential strategic opportunities and thrive while optimising their manufacturing footprints. The near-term goal of having the lowest cost of manufacturing output is fast being replaced by considerations spanning customer and supplier proximity, size of the domestic markets in which the business operates, the cost of transportation, and the overall resilience of the manufacturing network, among other factors. 

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This New Era is non-linear – Footprint optimisation will be key

Over the past three years, we have observed that companies that effectively planned their manufacturing location footprint and continue to conduct a strategic review of their locations on a regular basis have remained resilient, while those that did not have struggled.

The Asia Pacific region’s large base of industrial hubs is highly diversified with localised attributes, boasting a myriad of technologically advanced and high-cost manufacturing markets along with low-cost hubs. Investment is spread across the region as companies continue to look eastward and evaluate alternative manufacturing locations as part of their global expansion strategy and talent needs. Some recent trends and developments across key Asia Pacific markets are outlined below.


A multi-dimensional approach is key to manufacturing location selection 

As with any manufacturing hub, the depth, quality, longevity and cost of the labour, business environment and government policy, supply chain and logistics ecosystem will all be critical to companies’ holistic location selection strategies. This is especially the case as the strategic approach to manufacturing location selection has now shifted to one that is multifaceted and constantly evolving. 

A coherent alignment with the overall strategic business goals will be essential to help companies unlock value from their real estate, talent and location. Location strategy can be prone to individual biases as stakeholders may have different agendas to optimise for. Hence, ensuring that all factors are viewed and evaluated holistically is critical to ensure that the most resilient location strategy has been developed for any manufacturing operation. Some key considerations are outlined below: 

  1. Footprint Optimisation

    Re-shoring and regional footprint strategies are core to current considerations on footprint optimisation. These act as risk mitigation mechanisms as the pandemic has pronounced the awareness of operational risk for global supply chains. 

  2. Customer & Supplier Affinity

    Companies may focus on countries where there is both strong domestic customer as well as supplier presence in order to reduce transportation costs and minimise supply chain risks. 

  3. Digital Infrastructure

    Technology and digital tools are shaping the future of manufacturing in the midst of the Fourth Industrial Revolution. Manufacturing companies may seek locations that will support their digital pipeline, and innovation clusters that will advance their operations. 

  4. Co-location with other Functions

    Increased synergies and efficiencies can be gained by co-locating R&D and manufacturing. However, there is a trade-off between the advantages of internal and external agglomeration as companies seek to combine their locational drivers for R&D and manufacturing and evaluate locations to attract and retain both groups of talent. 

  5. Risk Profiling

    Companies will consider the risk profile across a broad range of macroeconomic factors such as economic and trade risks, supply chain risks and geopolitical risks. These also include potential concentration risk to determine whether they are overexposed in a particular country or city.

  6. Cost Pressures

    In spite of cost pressures, the competitiveness agenda of the manufacturing industry is shifting from a major cost-oriented approach to a more integrated one.

  7. Regulation

    Business regulatory regimes including trade agreements and special economic zones are likely to influence the development of sophisticated manufacturing supply chains and networks. 

  8. Talent Availability

    If companies have located in cities where other companies have also clustered, there may be increasing pressure on attracting/retaining talent, forcing them to consider alternative locations if competing for talent means increasing cost above a given threshold.

  9. Real Estate Availability

    Rather than decisions being made as part of a coordinated global strategy, they are often made organically, with incremental recruitment in locations where there is space in the portfolio and the talent and cost metrics can be met.
In light of these key factors and considerations, companies that actively seek to optimise manufacturing location selection by adopting a holistic and multi-dimensional approach will be best placed for manufacturing resilience and long-term growth.

To build manufacturing operational resilience, businesses and manufacturers are recommended to partner with advisors who can support across a range of activities spanning global location strategy, regional footprint optimisation, country and city selection, and market benchmarking. In doing so, businesses should also consider exploring data and technology to create advantage at the intersection of location, talent and real estate. 

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