Reshoring: Bringing manufacturing home

In previous years, businesses choosing to offshore their manufacturing operations and processes overseas was commonplace, becoming particularly popular for companies in the US.

However, many companies are being forced to reassess their manufacturing activities and operations with various transformative and disruptive global events taking front and centre in recent years – the pandemic, inflation, and more. And one of the fundamental changes US companies are considering is relocating their operations away from overseas countries and bringing their manufacturing back home – a process called reshoring.

But is reshoring the right choice, or is this hot topic just a knee-jerk reaction to today’s current world, with inflation having a significant impact on business operations globally?

Reshoring, offshoring and “near-shoring”

In today’s world, the prospect of reshoring is at the forefront of all business owners’ minds, and it’s becoming an increasingly growing trend for manufacturers.

Reshoring is the practice of bringing production and manufacturing operations “back home” to the country where the company was initially established – after originally being transferred overseas. Essentially, it’s the opposite of offshoring, which is relocating an operational activity abroad to reduce labour costs. The reshoring process can also be referred to as backshoring or inshoring.

Alternatively, a business could opt for “near-shoring”, which sits in the middle of offshoring and reshoring. Relocating manufacturing operations entirely back to the original country is not a business’s only option, with “near-shoring” opening up the possibility of moving a part of a company’s supply chain to countries nearby. For example, most American reshoring activity is based in Asia, but these activities could be taken to nearby countries such as Mexico and Canada.

Why is reshoring becoming a growing trend, especially in the US?

Wage inflation overseas

The primary driving force for why businesses consider reshoring is simple – saving money on labour expenses.

In the US, the premise of offshoring emerged when companies were seeking cheaper, more cost-efficient labour overseas, especially in Asia. However, key players in the offshore manufacturing scene, like China, have experienced significant wage inflation in recent years.

Consequently, the previous money-saving benefit of offshoring no longer exists, hence reshoring. Whereas in the US, the relative cost of labour in the US appears to have remained reasonably stable, highlighting a market for reshoring manufacturing operations.

Global uncertainties

In a time when the COVID-19 outbreak was rife, global supply chains and business operations came to a screeching halt, with shipping and transit in gridlock and disruptions around every corner. Similarly, events such as the war in Ukraine have been a catalyst for losses of foreign assets and many cracks in trade relations. Consequently, many businesses are now reminded of the possibility of geopolitical events impacting their future manufacturing activities.

Though we’re yet to see the long-term benefits and results of reshoring (as it is a relatively new trend), the possibility has sparked speculation amongst business owners globally, posing one key question: are we seeing the decline of globalisation and the rise of reshoring? Only time will tell.

Building robust, resilient supply chains

As we know, COVID-19 profoundly impacted businesses globally, which is said to have affected 98% of global supply chains. And even though the pandemic is well and truly behind us, its aftermath is still lingering and remains in business owners’ minds.

Therefore, companies are now keen to strengthen and enhance their supply chains to make operations much more resilient to any unprecedented events that may crop up.

Is reshoring manufacturing operations the right choice?

Advantages of reshoring:

Mitigating costs:
As countries continue developing rapidly, mainly in Asia, the prices of both labour and shipping back to American soil make the entire process much more expensive than it’s worth. Bringing labour back home could be just the thing to mitigate these expenses.
Instability of international trade:
The US is deploying a much more cautious approach to trade following the pandemic, Brexit, global conflicts and more. Taking those factors into account, having operations abroad may be risky – making reshoring a perfect choice.
Better supply chain management:
Bringing manufacturing activities back into their original country (taking the US as an example) means that supply chain links are all in the same time zone, ensuring workflows run seamlessly and much more efficiently. This could also have a knock-on effect, improving the delivery and overall quality of the product.
Regulatory factors:
Operating overseas involves a whole host of complexities regarding meeting trading regulations. Reshoring could ease the strain here, eliminating the need to conform to various quality control issues, intellectual rights and standards. When everything is back in one country, everything comes under one set of regulations – simple.
Boosting the national economy:
To cut a long story short, reshoring manufacturing can bring in jobs and increase employment in the original nation. Consequently, the country’s overall economy is boosted.
Reduced carbon footprint:
Without the need to ship supplies overseas, reshored companies are reducing air miles and their carbon footprint – great news for business and the environment.
Better brand perception:
Following on from the previous point, when everything is done “under one roof”, customers will have a much better perception of the brand, seeing this company as a driving force towards more eco-conscious manufacturing operations, alongside putting more money into the local economy.

Disadvantages of reshoring

Though the list of disadvantages when it comes to reshoring are minimal compared to the advantages, the cons related to the process are big – potentially creating huge blockers in the entire process:

The cost of relocation:
The enormous cost it takes to completely move manufacturing activities back to the original country is the main disadvantage of reshoring. It’s a task that not only costs a lot of money upfront but also requires in-depth logistical planning and management to execute properly. Otherwise, the company will only need to fork out more money later down the line, making the move worthless. Many consider appointing reshoring specialists to help with the transition.
Shortage of supplies and skills:
When relocating operations back home, manufacturers may, unfortunately, be faced with a lack of skilled workers and supplies. If a company cannot readily source materials in their locale, the cost of importing these products may be a huge detriment to profits. Similarly, the sector could be faced with a lack of skilled manufacturing workers, all due to offshoring these operations to other countries in previous years. Companies sometimes must bring in managers and business leaders from overseas to help with their operations.

Can reshoring restore manufacturing?

So, it does seem that reshoring could become a viable option for all kinds of manufacturing businesses in the US, helping reduce unemployment, streamline the supply chain, potentially take away budget strains and even prevent risks caused by unstable international events. According to recent research, 70% of firms surveyed said they would likely reshore in the coming years.

However, the route to reshoring manufacturing is no easy feat, and it will come hand in hand with many external complexities. Hopefully, time will tell if these complexities are worth the move and if they’ll work to restore significant employment of skilled manufacturing workers in these nations.

Here at Foster Lawson, we’re dedicated to finding the finest talent for manufacturing companies worldwide, particularly across the US. Whether you need skilled leaders to help with reshoring efforts or talented executives to lead your business towards success, let us be your chosen search partner.