Reshoring involves a company moving its manufacturing operations from a foreign country to the country in which it is based. The process is the opposite of offshoring, where manufacturing operations are moved overseas to access cheaper labor markets.
Reshoring is the process of transferring product manufacturing from a foreign country back to the country where the products are sold or the company is based.
Reshoring may seem counterintuitive at first – especially if the company will be subject to higher operating costs in its home market.
But there are several reasons why reshoring may be a worthy endeavor:
- Increasing costs – when costs increase in an overseas market relative to the home market, it becomes a less attractive place to do business. Many companies discover that the small difference in cost is not worth the hassle of maintaining international operations.
- Trade instability – geopolitical tension can also impact the viability of operations in other countries. China’s increasingly dominant global presence and the trade implications of Brexit are two examples.
- Regulatory factors – when a business establishes a presence overseas, it may be impacted by various factors such as different materials standards and quality control issues. The country may also fail to recognize intellectual property rights. Reshoring means the company only has to conform to one set of rules or standards.
Industries where reshoring is common
Reshoring is common in the following industries:
- Aerospace production.
- Automotive production.
- Component manufacturing – such as injection molding, die casting, and computer numerical control (CNC) machining.
- Complex or intricate product manufacturing.
- Electronics – in March 2022, for example, the U.S. government prepared to approve a $52 billion incentive package to reshore products such as semiconductors and printed circuit boards (PCBs).
- Aluminum and steel – in some countries, these industries have benefitted from government support for domestic production.
The future of reshoring
The pandemic has made many businesses aware of the very real risks of having their manufacturing based overseas.
COVID-19 continues to place immense pressure on global supply chains, with factory shutdowns, increasing transportation costs, lower demand, and port closures now so commonplace as to be accepted.
Technology and its ability to deliver leaner and more automated manufacturing will also be important for the future of restoring.
As labor costs become a smaller fraction of total costs, businesses that once offshored to take advantage of cheap labor are starting to favor markets in closer proximity.
In fact, according to a Gartner survey of 1,300 supply chain professionals, 56% believe automation will make onshore manufacturing economically viable in the future.
- Reshoring is the process of transferring product manufacturing from a foreign country back to the country where the products are sold or the company is based.
- Reshoring is common in industries such as aerospace and vehicle production, component manufacturing, complex or intricate product manufacturing, steel and aluminum production, and electronics.
- Reshoring is a practice many believe will increase in popularity. COVID-19 has exposed vulnerabilities in offshore manufacturing operations, while automation is also allowing businesses to reduce labor costs to a point where domestic production is viable.
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