The buzz about nearshoring
The question of nearshoring has attracted a lot of attention recently. The COVID-19 pandemic caused disruptions in the supply chains of many multinational companies, owing to earlier decisions to concentrate operations in distant locations. As border closures and other pandemic-related challenges led to substantial losses, these companies began exploring options to bring activities closer to home. Many expected a major trend of nearshoring to emerge.
A 2021 study, Getting Stronger After COVID-19: Nearshoring Potential in the Western Balkans, explored the region’s potential to attract these returning investments. The study found that competitive labour costs, geographic proximity to the European Union and a reputation for skilled workers speak in favour of the Western Balkans, but that persistent infrastructure deficits and governance issues need to be addressed. At the same time, the shift towards sustainability – exacerbated by regulatory and market pressures – has added a new layer of complexity, but also opportunity.
Decarbonization enters the scene
A newer study, Transforming the Western Balkans through Near-shoring and Decarbonisation, revisited the question with the benefit of hindsight. The study assesses whether nearshoring has actually occurred in the Western Balkans, identifies specific examples, and explores how it can be integrated with ongoing decarbonization efforts.
Recent nearshoring cases in the region show a growing focus on decarbonization as an important theme. Investments in renewable energy and green manufacturing stand out as key examples: Japan’s Nidec has invested in Serbia to produce motors for electric vehicles, and Taiwan’s Yageo has set up operations in North Macedonia to manufacture chip resistors and other electronic components for brands like Tesla.
The region also has considerable potential for foreign investments in renewable energy, particularly in solar and wind power. All economies within the region, with the exception of Kosovo, have attracted such projects. The Western Balkans’ proximity to EU markets and significant green potential are certainly drawing foreign investments that emphasize decarbonization and sustainability goals.
Foreign companies see potential in decarbonization
A survey of foreign companies operating in the Western Balkans, conducted as part of the study, underscores the potential synergy between nearshoring and decarbonization. A majority of respondents (63%) found the region attractive for green investment (see next figure), while 68% indicated they would probably or definitely invest more, if significant decarbonization improvements were made.
These findings demonstrate that sustainability can be a decisive factor in investment decisions, and that the region is well-positioned to capitalize on the decarbonization trend.
The survey also highlights that decarbonization can strengthen cooperation between local and foreign companies in the Western Balkans. If Western Balkan firms significantly decarbonized their operations, about two-thirds of foreign companies said they would “definitely” or “probably” be more inclined to collaborate with them, compared with 8% who said they “probably” or “definitely” would not (see figure below).
Decarbonization as a catalyst for nearshoring
Interviews with investors in the region confirm that nearshoring to the Western Balkans is gaining momentum, and that key motivators include shifting priorities and environmental considerations. Regulatory frameworks like the EU Green Deal and the Carbon Border Adjustment Mechanism (CBAM), along with growing customer demand for sustainability, are driving companies to decarbonize their supply chains.
German investors, for example, increasingly prioritize suppliers aligned with sustainability goals in regions providing access to renewable energy sources. They also seek locations that offer proximity to customers: shorter supply chains reduce transportation emissions while improving supply chain security. A “local-for-local” credo – producing in Europe the goods to be sold in Europe – opens new opportunities for companies in the Western Balkans.
Japanese investment promotion agency JETRO has also observed that Japanese companies are relocating production closer to European markets, potentially including the Western Balkans, due to EU regulations such as the Green Deal.
Integrating sustainability into business models is not just about regulatory compliance; it’s also a path to economic growth. The Western Balkans can strengthen its position as an investment destination for global companies with markets in Europe by adopting sustainable practices and aligning with CBAM requirements. With increasing carbon costs around the world – whether through taxes, regulations or emissions trading systems – suppliers will increasingly need to decarbonize to stay competitive.
This suggests that local suppliers who recognize the importance of decarbonization will have an advantage over other companies in securing partnerships with international investors. With clear net-zero targets in most European economies, producers need a supply chain that can support these goals. This puts a clear priority on investments in renewable energy and infrastructure to reduce dependency on fossil fuels and attract sustainability-focused investors.
Leveraging momentum for a sustainable future
The synergy between nearshoring and decarbonization offers a transformative opportunity for the Western Balkans. Recognising this potential, the Western Balkans Chamber Partnership Project connects national chambers of commerce in the region to improve the framework conditions for regional cooperation between companies. The project aims to foster collaboration, facilitate investments and align with sustainability goals, paving the way for the region to secure a competitive position in sustainable supply chains within the EU single market.
Collaboration between local and foreign companies is also important, for example in capacity building, certification support and knowledge-sharing. This can foster trust and innovation, while a unified approach to sustainability and innovation can amplify the region’s appeal as a nearshoring destination.
By aligning economic strategies with sustainability goals, the Western Balkans can reduce carbon emissions and drive economic growth. Decarbonization is not just a regulatory requirement; it’s an economic catalyst that can position the region as a key player in the EU’s sustainable supply chains. The challenge is whether local companies and governments can adapt quickly enough to seize this opportunity.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
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