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Reshoring and Onshoring Trend Update

Oct. 14, 2020
In response to the trade wars and the global pandemic, more American companies are looking for ways to bring more of their manufacturing operations back to the U.S.

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As companies work to shore up their global supply chains, some American firms are turning to reshoring and near-shoring manufacturing operations as a way to avoid disruptions inflicted by worldwide events like the COVID-19 outbreak. Many U.S. states are welcoming these organizations with open arms. According to The Reshoring Institute’s most recent count, 35 states are ready, willing and able to compete for manufacturers that are considering new or expanded operations within their borders.

Reshoring is the hottest topic in American businesses today,” the organization says, acknowledging that companies that are bringing manufacturing back face a “complex and sometimes daunting decision about where to locate manufacturing facilities.”

Those roadblocks aren’t preventing companies from exploring their options in the domestic marketplace, and for good reason. In Forbes’ Why Reshoring U.S. Manufacturing Could Be The Wave Of The Future,” Nick Stonnington explains the pandemic’s acute impact on global manufacturing and supply chains. 

“Because the pandemic has been so monumentally disruptive, many countries, including the U.S., will need to recalibrate the delicate balance between onshoring and offshoring to maintain the autonomy needed to survive future crises,” Stonnington writes, “while supporting a consumer-driven economy and sustainable resources.”

Who’s Moving Where?

There have been myriad examples of companies either talking about or actually making moves to bring their operations back to the U.S. For example, Reuters says Taiwan-based electronics manufacturers Foxconn and Pegatron are both eyeing new factories in Mexico as the U.S.-China trade war and coronavirus pandemic prompt firms to reexamine global supply chains. Foxconn’s possible expansion would “underscore a broader and gradual shift of global supply chains away from China amid a Sino-U.S. trade war and the coronavirus crisis,” Reuters reports.

Coronavirus ground cross-Pacific supply chains to a standstill, stranding automobile, electronics, and pharmaceutical components from China, exacerbating firms’ concerns about having their productive base an ocean away from American consumers,” Reuters reports. “Additionally, the newly implemented United States-Mexico-Canada trade deal requires more locally sourced inputs for tariff-free exports to the United States.”

Alan Russell of Tecma Group, a company managing factories in Mexico, told the news outlet that manufacturers in China that want to keep market share in North America have few choices. “They’re going to have shorten their supply chain and be more regional. It seems the virus has tipped the scale.”

Why Offshore in the First Place?

A trend that took hold in the late 1970s, the offshoring of manufacturing operations was largely based on the need to maximize shareholder profits. “By offshoring to countries with fewer labor and environmental regulations,” Stonnington writes, “the U.S. was able to generate enough profit to mitigate the enormous cost of shipping finished goods and even raw materials internationally.”

The global pandemic turned that theory upside down. Now, more companies are considering reshoring (bringing production back to the U.S.) and near-shoring (bringing it back closer to the U.S.), some essential manufacturing operations. In return, organizations can save on transportation costs; tie up less capital and for less time; and use more just-in-time (JIT) manufacturing methods.

The U.S. has the potential to be one of the few countries in the world that is essentially self-contained from a manufacturing standpoint,” Stonnington points out, noting that technology and automation will likely both play important roles in that shift. “Before COVID-19, many workers were afraid that automated technology would cost them their jobs. But since 40 million people have lost their jobs in the pandemic, we have the opportunity to reimagine our workforce with this technology from the ground-up.”

Already Gathering Steam

Manufacturing.net says the near-shoring trend to North America was already gathering steam pre-COVID. Now, companies are working to adjust their entire supply chains toward more geographically spread production. This is particularly true in the pharmaceutical and healthcare fields. “If the pandemic made one thing clear, it was this: Relying on one country to produce the world’s supply of medical equipment, medication, or other goods puts everyone at risk for production disruptions or shortages,” Manufacturing.net states.

Along with near-shoring, manufacturers are also diversifying production locations. If one region suffers a natural disaster or problem, for example, another can pick up the slack on production in the meantime.

“During the start of the COVID-19 pandemic, some companies that produced parts exclusively in China had no other option than to fly chartered planes overseas in order to ship their goods,” the publication notes. “When crisis hits, the ability to redistribute production or quickly ship parts becomes essential to keeping a business thriving.”

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

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