Feasibility of Nearshoring European Manufacturing Located in China to Russia

Yulia Panova
National Research University Higher School of Economics, St. Petersburg, Russia

Per Hilletofth
Jönköping University, Jönköping, Sweden

The purpose of this study is to identify and analyze factors that support nearshoring of offshored European manufacturing located in China to Russia. The attention is paid to factors, such as labor cost, inflation, exchange rate, and labor productivity that are analyzed based on deterministic models to identify logical dependencies. This study shows that wage growth might deprive manufacturing in China from its main competitive advantage of cheap labor in the forthcoming years. The growing wage rates naturally contribute to the prime cost that is aggravated by the potential inflation, which, in turn, limit the margin in the selling price. The cumulative effect of other extra costs can aggregate such an amount that, in the foreseeable future, companies would need to relocate manufacturing to new locations. One option could be to nearshore manufacturing to Russia.

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