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If Reshoring Is So Great, How Come No-one Is Doing It? .

OutsourcingGlobal sourcingmanufacturingOffshoring and OnshoringBlog+-
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There are many rather hopeful published studies at the moment, pointing to the huge benefits of ’bringing back’ manufacturing to post-industrial economies. But this supposedly obvious business case seems to have alluded most companies.

 

The Boston Consultancy Group, which has been at the forefront of these debates, finds in a recent study that 24% of senior manufacturing executives are considering returning production to the US. In the UK, Ernst and Young have issued a report which claims that reshoring could generate an additional £15.3bn of GDP to the economy and delivering 315,000 jobs.

 

Journalists have been excited by a few big names returning to American shores. WalMart has been leading the charge, by promising to spend an additional $50bn in US sourcing over the next decade. Stanley Black & Decker has recently produced its first power tool in America for 25 years. Other interesting projects, such as China’s Lenovo which plans to open a factory in North Carolina, has created an impression of a manufacturing rush to American locations.

 

The problem with these data is that don’t show the wider trends, nor does it provide us with information about the rate at which manufacturers are continuing to offshore production.

Within Procurement Leaders research, we have consistently found that far more organisations are planning to increase offshoring and only a minority are looking to reshoring. Interesting, we see that offshoring and outsourcing seems to be an option for increasingly core areas of business.

 

AT Kearney’s Reshoring Index shows that more manufacturing is being offshored compared to being ‘brought home’.

“While the so-called reshoring trend has helped improve the mood of U.S. manufacturing since the Recession, the reality is that the import value of manufactured goods into the US from 14 low-cost Asian countries has grown at an average of 8% per year in the last five years,” stated Pramod Gupta, AT Kearney principal and study co-author.

 

Automation has also done much to muddy the waters. In most advanced economies, who have supposedly moved into a post-industrial setting, production of manufactured goods has not actually declined. What has declined has been hundreds of thousands of jobs which serviced this output. This has lent the discussion a somewhat political air, especially during the Great Recession.

 

In terms of business decision-making, we have seen two trends which have increased the discussion. Firstly, wage inflation in emerging economies has eaten into margins and recast past make-or-buy decisions. Secondly, the tumbling fuel costs in the US, which has spearheaded the world shale gas revolution, has provided a boon for energy-hungry manufacturing.

 

For some, this will recast the business environment such that relocating manufacturing may be profitable. But, as with all things, this is subject to change and further flex: it is not the basis of a wider trend.

 

The dominant trend is still that emerging markets offer substantial savings for a manufacturing base, and these fundamentals remain the same. It is important, when businessmen are making decisions, or more precisely, when category managers are reviewing their sourcing plans, to look at the whole picture and not to be swept up in the intellectual fashions of newspapers.

This article is a piece of independent writing by a member of Procurement Leaders’ content team.

Jonathan Webb
Posted by Jonathan Webb