The key findings are outlined below and discussed in detail throughout this report:

Home vs. Away The repatriation of manufacturing in Europe In this report > The extent of offshoring > Who is re-shoring? > Expanding manufacturing > Technology drivers > It s all about best-shoring With recent announcements by Apple, GE and Ford stating their plans to bring some or all of their manufacturing back home, is this the start of a trend or a public relations move? Colliers International and the Manufacturing & Industrial Community of CoreNet Global s UK Chapter set out to explore European manufacturing trends, specifically the re-shoring phenomenon, or repatriation of offshore manufacturing back to companies home countries or regions. We surveyed multinational corporates across a variety of industries to go beyond speculation and measure the real extent of repatriation in Europe. The key findings are outlined below and discussed in detail throughout this report: In the last five years, almost 25% of manufacturers moved part of their operations to home countries. In some cases, these moves are driven by consolidation and rebalancing of production, rather than by deliberate repatriation policy. The proximity to customers is of growing importance to manufacturers who wish to improve response times to changes in local tastes and demand. Offshoring and re-shoring cannot fully explain multinationals movements; instead, many companies are best-shoring with operations distributed to exploit the competitive advantages globally. New technologies will benefit European manufacturing by reducing the importance of labour costs in the total cost of production. Market development and investment in logistics and transport infrastructure will also impact positively on European manufacturing as detailed in Colliers International s Top European Logistics Hubs report. Emerging economies remain the focus for manufacturing expansion: Eastern Europe, Russia and Turkey lead corporate preferences, followed by China and India. Movements between low cost countries, particularly from China to other emerging economies, will also increase, although hampered by inflexible infrastructure and supply chains. We trust you will find this report of interest and invite you to join the conversation online #best-shoring. Guy Douetil, Managing Director, EMEA Corporate Solutions, Colliers International Neil Austin, President, CoreNet Global UK Chapter

Proximity to new consumer markets is the main driver for offshoring. Offshoring is an established phenomenon. Simplistically, it is the transfer of work (and jobs) abroad and is one of the most visible manifestations of globalisation. Offshoring began in the 1970s as companies realised that enormous savings could be achieved by shifting operations offshore to low cost countries; it grew rapidly in the following decades. Originally limited to manufacturing and low skill operations, it now encompasses services, business support and, most recently, a range of strategic functions including product design and R&D. Recently, attention has turned to latest phenomena, re-shoring and near-shoring. These might be understood as the reversal of offshoring, or the process of bringing manufacturing back to a company s domestic market or region. Re-shoring has received growing media coverage as several large corporates, especially in the US, announced plans to bring parts of their offshored operations back onto domestic soil. Some observers interpret this as a sign that a manufacturing revival in advanced economies is possible and possibly already underway. How much production is offshored? 3% 7% 21% 21% 7% 41% SOURCE: COLLIERS INTERNATIONAL all production is domestic Less than 25% 25-50% 51-75% 76-99% All production is offshored Our survey was focussed on future offshoring and re-shoring trends, but our results suggest that companies are looking more at best-shoring, or optimising the distribution of their operations to maximise their business globally. The extent of offshoring Our sample shows that US companies have offshored more than European companies: 86% of US and Canadian businesses have more than half of their production capacity offshore, compared to 65% for their European counterparts. A 2013 European Manufacturing Survey (EMS) suggests that firms in the textile, leather and clothing industries as well as manufacturers of office equipment and electrical machinery, had the highest propensity to offshore between 1999 and 2006. This was attributed to the higher division of labour within production. While the composition of production is important, our survey found that over 46% of respondents considered proximity to new consumer markets as the main determinant in offshoring decisions. Establishing production close to destination markets allows manufacturers not only to simplify supply chains, but also to adapt products to local preferences and adjust production flows more quickly. This has been driving offshoring, but the survey shows that this is also a key factor in recent re-shoring decisions. 2 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Interestingly, only 4% of respondents considered government grants a primary driver in offshoring decisions. Energy companies are driven by resource distribution and availability, and component suppliers by the proximity to clients which is often the crucial criterion outweighing other considerations. In contrast, it is well known that heavy industry operators (e.g. aerospace, automotive) will pit markets against each other in order to maximise government incentives and concessions. Another way to assess the apparent importance of market proximity is to identify the relative importance of regions as either consumer markets or production markets. In our survey, Western Europe and North America (US/Canada) were identified as the top consumer markets (47% and 37% respectively), in contrast to Asia as a whole, which was identified by a more modest 10% of the sample as a consumer market. Interestingly, the survey showed that Asia (35%) was the main manufacturing market followed by Western Europe (27%) and North America (19%), despite the prevalence of companies from Western Europe in the sample. In Asia, China has the lion s share, with 27% considering it the primary production hub. Offshoring main drivers 4% 4% 35% 46% 12% SOURCE: COLLIERS INTERNATIONAL Cost of labour Other operational costs Proximity to new consumer markets Government grants Proximity/availability of suppliers Consumption vs production markets 47% 19% 37% USA / Canada 27% Western Europe 12% 3% EE + Turkey + Russia 35% 10% Asia 4% 0% Latin America Top manufacturing centre Top consumption market SOURCE: COLLIERS INTERNATIONAL 3 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

China s appeal as a production market is apparent in the steady increase in foreign investment over the last 20 years. The figures suggest that other countries may also benefit from offshoring should companies begin to widen their spectrum of alternatives. Most of these countries, while less costly than China, do not yet offer the same advantages of developed infrastructure, supply chains, as well as scale and efficiency generally. Lower wages alone are not enough. Our survey shows that 33% of companies intend to maintain production capacity at current levels throughout the Rest of Asia, China s main competitor, over the next three years. Benefactors of Foreign Direct Investment 2012 Logistics Performance Index million $ 250000 200000 150000 Timeliness LPI Score 5 4 3 2 Customs 100000 1 0 50000 Tracking & tracing Infrastructure 0-50000 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Logistics competence International shipments China (incl HK and Macao) Southern Asia South-Eastern Asia Western Asia China Region: East Asia & Pacific SOURCE: UNCTAD SOURCE: WORLD BANK 4 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Who is re-shoring? Re-shoring is a relatively new phenomenon. The recent buzz has been fuelled by companies announcing their intention to step up production in their domestic markets, coinciding in some cases with a reduction of operations offshore. So far, these announcements have been predominately confined to the US, with a seemingly more tepid and cautious approach in Europe. Official statistics contribute to the belief that manufacturing across the Atlantic is headed for a renaissance: manufacturing s share of US GDP has increased for three consecutive years for the first time since WWII. The numbers employed in manufacturing increased by nearly 4.5% since 2010, with some States reporting double digit growth. The top three factors for repatriating manufacturing based on our survey results were: 1. Proximity to key markets (85%) 2. Supply chain optimisation/transport costs (85%) 3. Erosion of cost arbitrage (50%) The first two factors were of equal importance and are closely linked. Companies want to avoid long lead times and uncertainty due to potential supply-chain mismanagement or other unpredictable events undermining the timely delivery and quality of the shipped product. Setting production closer to the end-market helps reduce lead times, save on transport costs and allows producers to have greater control over the entire process. Transport Uncertainties Transport costs and a desire to minimise supply chain disruptions often resonate as equally important factors. Despite container vessels getting bigger and more efficient, Considerations for re-shoring Increase in labour costs in emerging economies Transportation costs Lead times Currency appreciation in emerging economies Higher productivity in western markets Decreasing energy costs in western markets Intellectual property and patent protection Brand image Technological advancements, including robotics in a weak market carriers are faced with overcapacity and some struggle to remain profitable despite cost-cutting. In the short term, rates will be under pressure, but in the longer term a wave of consolidation is likely in the shipping industry. Consolidation, coupled with the forced shift to low-emissions fuel sooner or later, will negatively impact shipping prices. Although the bulk of global trade is currently water-borne, any development in the shipping industry is likely to affect the US more than Europe. European Logistics Development Recent developments in the European logistics markets and infrastructure upgrading have the potential to influence manufacturing dynamics in Europe. In particular, we expect sea trade routes linking Asia with Europe to be increasingly complemented by rail connections as rail gains market share and issues relating to differing rail gauges, speed 5 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

limitations and capacity are addressed. At the same time, the development and upgrading of deep-water ports in Southern Europe will enable these to accommodate larger ships and create competitive trade routes for goods shipped from Asia to Europe, especially those destined for Central and South Eastern Europe. More information on the Future of the European Logistics Market can be found on Colliers.com. The net effect of these developments on manufacturing in Europe is difficult to assess. On one hand, they will probably reduce transport costs from one region to another, and potentially reinforce the case for manufacturing in cheaper locations. On the other hand, they will further integrate Europe in the global supply chain, with positive spill-overs on the regional industrial landscape. Erosion of Cost Arbitrage Perhaps the most widely cited, though not most important factor in repatriation, is the sharp rise of labour cost and consequent erosion of cost advantages in emerging economies. China is a typical example with salaries more than doubling since 2007. The introduction of mandatory employer social welfare contributions and rising wage expectations from employees is also likely to place total labour costs under further upward pressure. A study by the consulting firm Alix Partners estimates that, by 2015, the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the U.S. Increase in productivity and lower energy costs Higher productivity in the Western world, partly linked to growing automation, is also cutting unit production costs and reducing the impact of labour costs on the final price. This contrasts with lower productivity in China and the recent slowdown in total factor productivity growth (2.8% in 2008-10 compared to 4.7% in 2001-07). The lower cost of energy is another driver. This argument, however, applies mainly to the US, where the shale revolution has the potential to push down energy prices further. The impact on other markets has so far been limited, partly due to restrictions on energy export from the US. However, the relatively low share of energy costs in total manufacturing costs (e.g. 3% on average in the UK) is such that only the most energy-intensive industries, such as petroleum, coal and chemical product manufactures, are likely to benefit substantially from cheaper energy prices. Intellectual property protection Concerns around intellectual property and patent protection are also leading some companies to reassess their locational strategies in manufacturing and consider repatriation to their jurisdiction or similar jurisdictions where they can find greater protection for their investments in R&D and avoid their products getting copied. Reputation and brand image Branding and reputational aspects matter as well. Given the prevalently negative image of offshoring in the public opinion and concerns about quality, increasingly consumers like the idea that products are sourced from local suppliers, even if this involves paying a premium. The lengthening and increased fragmentation of the supply chain due to offshoring means many companies have been struggling to maintain quality control throughout all stages of manufacturing. Setting production at home or relying on local suppliers reduces quality related-risks and can generate positive spill over for the brand image. This is particularly true for luxury and upmarket brands, for which qualitative aspects and consumers perception are paramount. These brands typically also have higher public visibility than others and, therefore, are more sensitive to public opinion in their decisions. As part of a campaign to sell more British-made goods, John Lewis is looking to bring some textile manufacturing back to the UK and increase sales of UK products by at least 15% by 2015. Likewise, Mulberry, a UK fashion company, wants half of its luxury handbags to be made in the UK in the next five years. Beyond offshoring and re-shoring: best-shoring The survey, and anecdotal evidence, suggests that analysing multinationals strategies solely from an offshoring and re-shoring perspective can be potentially misleading. Companies are not shifting production back home for the sake of it, but as part of a considered global approach that has been described as best-shoring. Best-shoring ensures that different parts of the supply chain are allocated to regions and countries where production and distribution costs can be optimised, be it labour costs, energy costs, the availability of raw materials and suppliers. 6 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Despite the attention drawn by manufacturing repatriation, figures show that companies locational strategies are indeed far from being one-dimensional. Figures published by The Economist show that as much as 24% of manufacturing capacity of companies looking to change manufacturing source will be shipped from one low-cost country to another. Moves between high-cost countries are also a phenomenon to monitor. Some German automobile manufacturers, for example, are increasing their automobile production in the United States, such as Mercedes in Alabama, BMW in South Carolina and Volkswagen in Tennessee. This is partly driven by lower energy costs in the US relative to other regions, including Europe. Manufacturing to expand in emerging markets Looking at future production plans, emerging economies clearly remain the primary targets for manufacturing expansion. Our survey shows that half of the participants intend to ramp up production in Eastern Europe, Russia or Turkey in the next three years; 44% are eyeing China and 37% India. Almost none of the companies surveyed have plans to reduce their manufacturing footprint in these geographies over the next three years. Of the few companies that are planning reductions, in most cases it is because they are shifting operations from one emerging country to another. The notion of offshoring is an odd one for a truly international company. The home shore for Siemens is now as much China and India as it is Germany or America. Peter Löscher, CEO, Siemens (The Economist) Intentions regarding production capacity in the next three years 37% tu USA / Canada 30% p Latin America 52% tu Western Europe 26% tu Africa & Middle East 48% p EE + Russia + Turkey 37% p India 44% p China 33% tu Rest of Asia 31% tu Japan How to read the numbers: e.g. 52% of the sample plan to maintain production capacity stable in Western Europe. p increase in production capacity tu stable production capacity q decrease in production capacity 7 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Competitiveness of Western economies will clearly suffer from the rise of emerging countries, but also from a number of domestic factors. In Germany s case, for example, the only European economy in the top-ten, the drop is attributable particularly to concerns over the rising cost of labour, energy and materials, exacerbated by the on-going instability in the Eurozone. Although Africa did not come out as a key geography for expansion in our survey, it s increasingly on the radar of multinationals and we believe it will be playing a growing role going forward, both as a production and consumption centre. FMCG companies, in particular, are increasing investment across the continent as demand for these products grows. Nestlé opened two new factories in South Africa last year, which will allow a partial substitution of previously imported products. Likewise, Unilever announced that it will invest 75 million in the same country to expand its capacity with a new factory and to upgrade existing sites. As some emerging economies have begun to witness a gradual rebalancing from investment/production to consumption and have seen their middle class widening, the rationale for manufacturing in these countries has also fundamentally changed. Increasingly, companies want to open new operations in a country such as China, more for its huge domestic market potential than for its cost advantages. Being recognised as a local producer also has its advantages. A number of factors lead us to believe that emerging economies strategic importance will increase, both on the production and demand side. To exploit this, many companies have moved R&D along with manufacturing to these markets. Estimates suggest that between 30-35% of US companies have offshored their innovation function. Once R&D has been established and synergies with manufacturing have been created, it makes less sense to ship manufacturing back home. Generally, companies are finding it more suitable to have plants closer to their markets and to their R&D units, although issues with the security of intellectual property are also an important concern. Competitiveness clearly remains a strong argument in favour of emerging markets. According to Deloitte s 2013 Global Manufacturing Competitiveness Index, China is still the most competitive country for manufacturing and is likely to remain so in five years time. Over that period it will be other emerging markets, particularly Vietnam, India, Indonesia and Brazil, that will see the largest competitiveness gains. Most advanced economies are expected to lose ground as emerging markets build up infrastructure, develop advanced industrial capabilities and become suitable locations for a wider range of industries. Local manufacturers in countries like China are already moving up the innovation ladder and increasingly specialising in the design and production of new, differentiated products in addition to the assembly of standardized components. Global Manufacturing Competitiveness Index 2013 2013 IN FIVE YEARS 1 CHINA 1 CHINA tu 2 GERMANY 2 INDIA p 3 USA 3 BRAZIL p 4 INDIA 4 GERMANY q 5 SOUTH KOREA 5 USA q 6 TAIWAN 6 SOUTH KOREA q 7 CANADA 7 TAIWAN q 8 BRAZIL 8 CANADA q 9 SINGAPORE 9 SINGAPORE tu 10 JAPAN 10 VIETNAM p 11 THAILAND 11 INDONESIA p 12 MEXICO 12 JAPAN q 13 MALAYSIA 13 MEXICO q 14 POLAND 14 MALAYSIA q 15 UK 15 THAILAND q 16 AUSTRALIA 16 TURKEY p 17 INDONESIA 17 AUSTRALIA q 18 VIETNAM 18 POLAND q 19 CZECH REPUBLIC 19 UK q 20 TURKEY 20 SWITZERLAND p SOURCE: DELOITTE 8 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Europe s manufacturing market Automotive and pharmaceutical industries drive growth in Eastern Europe So, with all of these elements taken into account, what are the prospects for manufacturing in Europe? Our view is that Western Europe will remain a place suitable for manufacturing despite the long standing shift to the services industry and competition from other geographies. Despite the fact that 25% of companies based in Western Europe have reduced their productive capacity in their region in the last five years, 20% of the total sample still sees it as a territory for expansion over the next three years and the large majority have no plans to reduce current levels of operations. In addition, it is likely that the current economic malaise in Europe weighed negatively on these figures and that in other circumstances companies would have expressed a more positive judgement. The prospects for Eastern Europe and neighbouring countries, such as Russia and Turkey, are particularly bright, with the automotive and parts sector expected to be a continuing driver of manufacturing growth. Over half of companies belonging to this group intend to scale up operations in the region in the next three years. Pharmaceutical companies are also a growing player in the region. Companies such as Sanofi and Novartis, for example, have recently built new plants in Russia. The likelihood of re-shoring taking place also depends on the type of manufacturing. Cost-driven manufacturing with high incidence of labour cost, such as textile and clothing, is unlikely to return to the West any time soon. The cost differential between high cost and low cost countries is destined to decrease, but is likely to persist for the foreseeable future. Hence, as wages rise in one country, production is more likely to be moved to cheaper countries. The future of manufacturing: technology will drive regionalisation of production In the longer term, technological innovation is likely to impact multinationals approach to manufacturing and locational strategies, radically transforming the supply chain. While 3D printing is now just in its earliest stage, it is quickly developing and will soon make it possible to manufacture complex solid objects and customise inputs as easily as standards parts. Component assembly will increasingly be handled by robots, making labour cost and regulation a less determining factor in locating factories and in sourcing decisions. According to the International Federation of Robotics, the use of automation and robotics is forecast to increase in all regions by 2015. Australasia is set to see the biggest increase, from 622,000 robots in 2012 to 841,000 by 2015. In Europe, the number of robots is expected to increase by roughly 10%, to 423,000 units. These two forces are already at work and will increasingly undermine the business case for localising manufacturing away from buyer markets and will prompt companies to bring production closer to consumers. As a result, manufacturing and other parts of the supply chain will become increasingly regional and local, which is partly what we re already witnessing now. While the manufacture of selected products in the advanced economies (including Western Europe) might still not prove efficient or economic viable, these long-term processes should, in theory at least, help to preserve, if not boost, industrialisation across the old continent. 9 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Best-shoring is the way forward When we embarked on this project we wanted to find out if repatriation was an emerging manufacturing trend and evaluate its impact on European manufacturing. What we found was that most companies are not looking at their manufacturing strategy in terms of offshoring or re-shoring, rather they are looking at the best-shore based primarily on where their consumers are and a variety of other factors. Transportation costs and infrastructure have a significant impact on location strategies and Europe is well poised to benefit from changes to rail and deep sea ports, increasing the region s appeal as a best-shoring option to reach a broad consumer market in both Europe and Asia. Innovations in technology such as 3D printing and robotics will allow companies to locate their manufacturing facilities closer to consumers and will mitigate cost savings that might be found in emerging markets by allowing companies to deliver more customised products to their clients faster. Manufacturing will continue to grow and, even though some manufacturing is moved back to Europe to be closer to the large consumer markets, emerging markets will also experience growth as their domestic economies and consumer bases grow. About this report This report was put together in partnership between Colliers International and CoreNet Global s UK-based Manufacturing & Industrial Special Interest Group. The survey was undertaken in July 2013 and included manufacturing companies from a variety of sectors throughout Europe and globally. Detailed results are available upon request. 10 Home vs. Away Colliers International CoreNet Global UK Chapter Join the conversation #best-shoring

Authors: Guy Douetil Managing Director EMEA Corporate Solutions DIRECT +44 20 7487 1888 MOBILE +44 7824 355 888 MAIN +44 20 7487 1645 guy.douetil@colliers.com Karel Stransky Director EMEA Corporate Solutions DIRECT +420 226 537 633 MOBILE +420 603 457 242 karel.stransky@colliers.com Bruno Berretta Senior Research Analyst Research & Forecasting DIRECT +44 2073446938 MOBILE +44 7796995112 MAIN +44 20 7935 4499 bruno.berretta@colliers.com About Colliers International Colliers International is a global leader in commercial real estate services, with over 13,500 professionals operating out of more than 482 offices in 62 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. colliers.com About CoreNet Global UK Chapter CoreNet Global s mission is to advance the effectiveness of Corporate Real Estate professionals and the entire industry engaged in delivering value to corporations through the strategic management of corporate real estate and workplace resources. The UK Chapter is one of 50 locally-based chapters worldwide binding the network of 7,000 members and serving as a forum for members to meet and hear experts on topics affecting the industry. Copyright 2013 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Accelerating success.