Reshoring the production of a critical component: €120 million
Supply chain
You don't remove the risk — you move it, from one single supplier to another.
In the scenario Real security instead of shifted risk, with half the capital exposed.
The protagonist & the context
The global operations director, with a board mandate to reduce dependence on a single geopolitical region and a public-incentive window open for another eighteen months.
A mid-sized industrial manufacturer relying on a critical electronic component assembled in a single Asian region. Eighty percent of annual demand flows through one supplier; the component cannot be substituted in the short term without redesigning the end product. The incentives cover up to 35% of the capex of a new domestic plant.
Background
Global supply-chain disruptions in recent years have exposed a risk that traditional cost models ignored: the geographic concentration of a critical component. Reshoring has become a political priority in many industrialised countries, with dedicated incentive packages. But the track record of large reshoring programmes shows a recurring pattern: the new domestic plant reduces the original geopolitical risk but introduces local vulnerabilities — energy, skilled labour, raw materials — that are typically underestimated at the assessment stage. The structural cost of domestic production remains 20–40% above Asian alternatives even after incentives, which means the economic viability of the project depends entirely on the duration of public support.
The dilemma
The case for reshoring seems closed: real geopolitical risk, available incentives, board pressure. But the red team raises a question no one has yet formalised: which risk are we actually shifting, and to where? The new plant eliminates dependence on Asia but concentrates it on a single local energy source, one regional raw-material supplier, and a limited pool of skilled labour. A disruption in any of those three axes stops production just as before — and does so at a more expensive site. The alternative — two suppliers in different regions with partial reshoring — covers both risks without staking everything on a plant that cannot sustain itself without subsidies.
Exhibits
Estimated component unit cost under each strategy, including incentives for the first and geographic diversification for the second (illustrative data).
Number of sole suppliers in each critical category of the new domestic plant (energy: local grid; raw material: regional supplier) — any category with a single supplier is a single point of failure (illustrative data).
The contradictor's analysis
- The higher cost is offset by security plus incentives.
- The new site will have the skills and the workforce.
- The «political» advantage lasts for the whole life of the plant.
Reshoring doesn't eliminate risk: it shifts it. The new factory has its own weak points — energy, water, a single local raw-material supplier: if one fails, everything stops. And the incentives are temporary: without them, the total cost stays structurally higher. Real security is having two suppliers in different regions, not a single new plant.
- Map of the new points that, if they fail, stop everything (energy, materials, logistics).
- Without incentives, how much more does it really cost than today?
- How long to reach full capacity, and are the skills there?
- Which risk are you removing, and which new risk are you adding?
- If the incentives end in 5 years, does the calculation still hold?
Provenance: supplier risk map · total-cost analysis · incentive duration · red-team base.
Resolution & consequences
Methodological note
Composite teaching case. Figures and details are illustrative; it is not a client outcome or a performance claim. Built, in the method of the Harvard Business Review, from recurring decision patterns in the sector, merged and anonymized to protect confidentiality. The «provenance» notes describe the type of evidence the engine cites with traceability in production. No Δ-CSI score is shown: composite cases have no frozen, reproducible scorecard.