What is in this article?:
If the reshoring revolution turns out to be a false dawn, it could distract us from the policies and investments that need to be put in place in order to make supply chains more competitive and effective.
We’ve been hearing a lot lately about the return of industry from foreign shores to the U.S.—a practice commonly known as reshoring—and how these repatriated companies are driving a manufacturing renaissance in America. It’s an enticing idea that resonates both politically and socially, but is it as big a trend as its proponents and various surveys claim?
Research underway at the MIT Center for Transportation & Logistics confirms that over recent years many companies have indeed established new manufacturing capacity in the U.S. However, the initial findings suggest that this is far from the trend that has attracted so much interest, and could have more to do with broader supply chain changes than the rebirth of American manufacturing.
The Case for Reshoring
Modern reshoring practices took off a few decades ago when U.S. companies started building factories in other parts of the world to take advantage of lower costs. Fewer regulations and the growth of IT-enabled management infrastructures added to the momentum.
Many argue that the flight to low-cost countries is now being thrown into reverse by a number of changes, such as:
- Increasing wage levels in Asia are eroding the region’s cost advantage over the U.S.
- Asian labor is less complaint than in the early days of reshoring, leading to high turnover rates and, in extreme cases, business disruptions and increasing rates of suicide.
- Unpredictable transportation costs and increased complexity in cross-border transfers, both of which add complexity to the management of goods moving across great distances and many borders.
- The Chinese Yuan has appreciated and in combination with a weak dollar makes domestic production in the U.S. more attractive.
- The challenges of outsourcing production to far-flung places have become visible. Cultural differences, unfamiliar supply bases, longer distances and skills gaps all have to be managed.
- Similarly, there is a greater awareness of the risks associated with offshore manufacturing, such as the hazards of lax labor laws, and the increased vulnerability of international supply chains to disruptions.
- Emerging manufacturing methods such as 3-D printing promise to make U.S.-based production even more cost-effective.
- The increasing need to tailor products to consumer demand, which is driving the late-stage, near-market customization movement.
These changes offer some compelling reasons for bringing production back to the home country, and for the U.S. this is especially appealing at a time when Americans yearn for a return to the heyday of homegrown manufacturing when jobs were seemingly plentiful. Moreover, vested interests are eager to provide evidence of a national manufacturing base that is being rejuvenated by its believed newfound competitiveness.