Much has been written in recent times about reshoring: the practice of bringing manufacturing and services back to the US, the UK and other originating countries for a variety of reasons after “off-shoring” and extending supply chains for decades, but primarily for the cost play, and often leading to the “hollowing out” of the local supply base.
It is a trend that clearly has the potential to have a significant impact in terms of “home” macroeconomics: helping to balance trade and budget deficits, reduce unemployment by creating good, well-paying manufacturing and service sector jobs, and can help to foster a highly skilled workforce. Manufacturing companies in sectors as diverse as aerospace, automotive, defence, electrical equipment, industrial products, agricultural machinery and textiles have all benefitted, as well as in the service sector (eg R&D, back office and telecoms) too.
A recent EY report into the reshoring phenomenon has, for example, concluded that in the West Midlands region of the UK alone there is the potential to contribute up to £1.8bn in GDP and 35,000 jobs over a 10 year period to 2025, with the automotive industry being a significant beneficiary; across the UK the figure is £15.3bn of GDP and 315,000 jobs by 2025. The EY report really reiterates trends and opportunities that were identified in a report we partnered on in conjunction with the EEF in 2014 [EEF Report].
The key drivers for reshoring are: the significant potential to strengthen operations and the local supply base by reducing the total cost and time to market of products; minimising supply chain risk from having extended supply chains (including improved reliability); controlling and managing quality; a narrowing wage gap with BRIC and other emerging markets; access to highly skilled workforces; transport, raw material and energy cost savings; provenance; consumer preference; etc., as well as improving balance sheets and profits, and making product innovations more readily achievable and effective.
As the global economy improves, the trend is likely to continue, particularly if home governments and other key stakeholders provide the right climate for such investment – through favourable tax incentives, infrastructure, promoting focused growth and access to finance, cutting unnecessary red tape, etc.
But there is a cautionary note, with some legal “icebergs, flotsam and jetsam” to plot safe course through, for those intent on riding the wave and bringing production back home, including: cross-border implications of moving production; potential interruption of supply in the short term; an inability to access finance; workforce, pensions and tax issues; planning, regulatory and environmental considerations; as well as a failure to carry out the requisite cost-benefit analyses.
But for those in the right sectors who properly plan and are brave enough to get their surfboard out to ride the wave, significant opportunities are unlikely to be too far away…
