China’s dominance in global manufacturing is coming to an end, according to British industrialist Nat Rothschild, as prolonged Covid disruption prompts companies to source parts closer to home.
Mr Rothschild, a banking scion and businessman, said more companies were now looking to factories in Europe, south-east Asia and Central America for supplies.
"The era of Chinese low cost manufacturing is over," he told The Telegraph. “People are prepared to pay more to have the stuff manufactured on their doorsteps.
“We're seeing American companies in particular wanting to move either to Southeast Asia or even to Mexico."
Mr Rothschild is executive chairman of Volex, a British company that makes circuit boards, cables and plugs for data centres, defence firms and consumer goods manufacturers.
Volex on Thursday set a target to nearly double its annual sales to $1.2bn by 2027, saying the global shift towards localised supply chains would help it reach its target.
Companies are shunning China as wages there rise, putting up costs, and Covid disruption leaves many customers facing shipping times of up to 16 weeks.
Covid and Russia’s war on Ukraine have also exposed the frailties of supply chains. Many manufacturers, ranging from car makers to jet builders, were buying components from either a single supplier or from a few companies in a single region. Both practices were vulnerable to lockdowns or war-induced factory shutdowns.
“The world perfected a kind of meticulous, just in time production system across multiple industries that all got turned on its head,” Mr Rothschild said.
Customers now want “a multiplicity of manufacturing locations” in order to avoid sudden stoppages.
Mr Rothschild gave an example of an unnamed American maker of washing machines, dish washers and kitchen electricals that was using the same trio of wire harness makers shut down by a Covid outbreak.
“These sort of procurement guys were told to go find alternative support sources of supply at any cost,” he said. “It's giving us a tremendous amount of opportunities.”
Mr Rothschild, a member of the billionaire banking dynasty, owns just under a quarter of AIM-listed Volex. He bought into the company in 2008 and joined the board in 2015, quickly ousting the existing chairman and chief executive after suffering a bruising share price decline.
Since then, Mr Rothschild has sought to shift the company from its roots as a simple manufacturer of domestic plugs and cables into a maker of higher-value products.
He began expanding the business through a string of acquisitions starting in 2018. Volex has bought nine companies since then, spending more than £100m. The biggest deal was the €61.8m purchase of Turkish power cord maker DEKA in 2020.
The UK is a good hunting ground for businesses, Mr Rothschild said, “because they’re cheap.” He said Volex was on the lookout for companies which fabricate metalwork for electromechanical components. Heavier manufacturing like this “needs to be regionalised,” he said.
Labour shortages are hitting the company just as they are with his competitors, he said. Components shortages are also holding back his Irvine Electronics business in California, which makes circuit birds for missile launch systems.
“It's not all plain sailing but these are tiny businesses relative to our overall size,” Mr Rothschild said.