Offshores Coming Home (Part II)

I periodically revisit the trend of “reshoring” – the process of bringing activities that were off-shored back to the home country. According to a recent article in the Financial Times, the shift from off shore manufacturing to domestic manufacturing has become increasingly pronounced (see US manufacturers ‘reshoring’ from China):

…[A] Boston Consulting Group survey found that 21 per cent of a sample of 200 executives of large manufacturers were either already relocating production to the US, or planning to do so within the next two years. A further 33 per cent said they were considering it, or would consider it in the near future.

Those figures are sharply increased from a similar BCG survey early last year, which found 10 per cent of respondents moving production to the US, and a further 27 per cent considering or close to considering it.

The article attributes the driving factor to wage inflation in traditionally low cost manufacturing countries. However, as I’ve mentioned previously, there are various other factors affecting those decisions as well, including increased automation in manufacturing, changes in long term strategies, and quality differentials (see Offshores Coming Home).

In fact, there is a long standing debate about the perceived benefits of offshoring versus its actual costs. And as I’ve noted (see Small Business in US Reevaluate China Outsourcing Strategy):

I have found that managers typically overestimate the benefits…i.e., the ability to access cheap labor…and underestimate its costs (e.g., those born out of cultural, political, economic, and regulatory differences across countries)…

Although I agree that there are compelling business reasons to consider offshor[ing], it is also important for managers to recognize that the practice is not without strategic consequences.

All things considered, it seems there is something to the reshoring trend. The phenomenon has garnered more and more interest over the years (as depicted in the Google Trend Report below). And given recent technological advances, coupled with  political and economic developments in emerging markets, I fully expect the reshoring trend to continue.

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