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Medical manufacturers begin to reshore business, with positive impacts

Since 2020, global supply chains have faced significant disruptions due to factors such as geopolitical conflicts, armed conflicts, climate change and shifting demographics. These challenges have been particularly acute in the medical devices sector, where maintaining resilient supply chains is critical. The Covid-19 pandemic starkly highlighted the vulnerabilities in the sector, leading to severe shortages of essential medical devices such as ventilators, PPE and diagnostic equipment. The shortages underscored the need for more robust and adaptable supply chains.

In response to these disruptions, companies in the medical devices sector are strategically relocating their supply chains to mitigate risks and, in the long term, reduce production costs. Rising geopolitical tensions have prompted governments to introduce new support mechanisms for “reshoring,” “nearshoring” and “friendshoring” specifically aimed at critical industries such as healthcare.

Reshoring involves bringing parts of the supply chain back to the home country from overseas. Nearshoring moves business operations closer to consumer regions to decrease supply chain costs and increase efficiency. Friendshoring refers to relocating business operations to politically aligned allies to ensure more reliable and secure supply chains.

In the US, measures such as the Chips [Creating Helpful Incentives to Produce Semiconductors] Act and the Inflation Reduction Act are providing subsidies to vital sectors such as semiconductors, which will impact the medical devices sector. Similarly, the UK government plans to invest billions in domestic manufacturing for life sciences, among other critical sectors. Despite slow economic growth making supply chain relocation expensive, companies are prioritising these steps to build resilient supply chains and avoid future shortages.

GlobalData’s thematic report, Supply Chain Disruption, reveals that most manufacturers have already begun reshoring their supply chains, with as many as 90% reporting positive effects on their business for some industries (Censuswide survey). In addition to reshoring, companies are diversifying their supply chains through friendshoring and nearshoring. Regions such as Latin America and Mexico are emerging as attractive alternatives to previous manufacturing locations, offering large talent pools and highly educated workforces. Southeast Asian countries such as Malaysia, Vietnam and Thailand are also becoming popular due to their lower labour costs and rapidly growing infrastructure.

Overall, the trend towards reshoring, friendshoring, and nearshoring is reshaping the global supply chains of the medical devices sector. This strategic shift aims to enhance resilience and adaptability in the face of ongoing and future disruptions, ensuring that critical medical supplies remain available when needed most.

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