McKinsey Data: Electronics and Machinery Face Strongest Pressure for Manufacturing Footprint Shift

For consumers and businesses buying everything from smartphones to industrial tractors, the price tag increasingly reflects a hidden premium: the cost of moving the factory. As geopolitical tensions, tariffs, and industrial policies rewrite the rules of global trade, the companies building the world's hardware are being forced to uproot decades-old supply chains.

The map of where goods are assembled is changing rapidly, driven by a mandate to build resilience against future shocks. But while the final assembly locations are shifting across borders, the underlying dependency on the original suppliers is proving far harder to break.[3][4]

The pressure to relocate is not distributed evenly across the economy. According to a January 2026 analysis by McKinsey & Company, the electronics, machinery, and semiconductor sectors face the highest near-term disruption risk of any industry.

These sectors share a specific set of vulnerabilities. They are highly concentrated in a few geographic hubs, heavily capital-intensive, and deeply exposed to shifting trade rules and tariffs. Moving production for a semiconductor fabrication plant or a precision machinery facility requires billions of dollars in upfront investment, making footprint decisions expensive and difficult to reverse.[1]

How this disruption actually works comes down to the mechanics of modern manufacturing. In the electronics and machinery sectors, production relies on a vast web of specialized tier-two and tier-three suppliers providing intermediate components like printed circuit boards, microprocessors, and precision-machined parts.[3]

Moving final assembly—the last step where parts are put together—is relatively straightforward. Moving the entire ecosystem of component suppliers is a generational challenge. As a result, companies are finding that they can shift their final footprint, but they cannot easily replace the deep-tier suppliers that feed it.[2]

The evidence of this partial migration is visible in the latest global trade data. The McKinsey Global Institute's March 2026 update reveals that while direct US imports of consumer electronics from China have declined, the Association of Southeast Asian Nations (ASEAN) and India have rapidly gained market share.

Between 2017 and 2024, the share of ASEAN's electronics exports headed to the United States doubled, rising from 10 percent to nearly 20 percent. This shift represents a massive reallocation of final assembly capacity to emerging markets.

However, cross-referencing the disruption risk with the trade flow data reveals a structural catch. While final assembly has shifted to ASEAN countries to avoid direct geopolitical exposure and tariffs, China has deepened its role as a supplier of intermediate inputs to those exact same ASEAN hubs.[3]

China is increasingly acting as a "factory to the factories," shipping the essential chips, smartphone parts, and industrial components needed to power the new advanced manufacturing centers in Southeast Asia. The geographic distance of trade has increased, but the geopolitical dependency remains embedded in the sub-components.[4]

Where the evidence remains thin is the long-term cost impact of this two-step supply chain. While surveys indicate that 97 percent of supply chain leaders have applied combinations of inventory increases, dual sourcing, and regionalization to boost resilience, the financial toll of these buffers is still emerging.[2]

Some models suggest that up to 20 percent of production costs could increase due to supply chain disruptions and the inefficiencies of fragmented production networks. It is currently unclear how much of that premium will be absorbed by manufacturers' margins versus passed on to end consumers in the form of higher prices.[3]

Furthermore, the data highlights a critical blind spot in corporate risk management. The majority of companies report understanding their supply chain risks only up to their tier-one suppliers—the companies that sell directly to them.[2]

This lack of deep-tier visibility leaves them largely blind to deeper vulnerabilities. A disruption at a tier-three component manufacturer in Asia could still halt production at a newly reshored facility in the United States or Europe, entirely negating the resilience benefits of the new footprint.[2][4]

For the electronics and machinery sectors, the next phase of the footprint shift will require moving beyond geographic relocation. True resilience will depend on whether companies can successfully map their entire multi-tier supply networks and incentivize the migration of the deeper component ecosystems. Until then, the global manufacturing map will continue to look different on the surface, while remaining deeply interconnected underneath.[3]