“Reshoring” refers to the efforts to return jobs and manufacturing operations that were once “offshored” to another country back to those companies’ home country. In the United States, These efforts were already one the rise, and the arrival of the COVID-19 pandemic has made them even more urgent for businesses across multiple industries.
You may even have heard the term being bandied about yourself, as of late, and if you’re trying to learn a bit more about what reshoring is all about, why some companies feel it’s important, and what challenges they’ll face on the route to their goals, then read on.
If you’ve just heard about reshoring recently, then chances are you’ve heard about it framed within the context of COVID-19. Shortages of personal protective equipment (PPE) for frontline workers, for instance, has revealed that there may be issues with relying on a trimmed-down global supply chain that focuses solely on cost reduction to the detriment of other factors.
There exists a wide variety of potential disruptions that can hobble such a global supply chain—natural disasters, pandemics, geopolitical crises—and supporters of reshoring believe it’s a strategy that can help build supply chain resilience. In relying more on one’s locality, the reasoning goes, businesses can mitigate the fatal weakness of reliance on the global supply chain while simultaneously providing jobs to their countrymen.
Combined with these benefits, there are other reasons businesses are now more apt to explore the possibilities of reshoring. For example, some may have realized that markets are getting more competitive, and the savings they once enjoyed by offshoring are diminishing.
They may find, for instance, that they can get the same (or even cheaper) prices by manufacturing with an American company specializing in CNC machining like Fictiv, versus a similarly-equipped Chinese manufacturer, simply due to rising labor costs in that region of Asia. Other reasons that companies may be considering reshoring include:
- Boosting brand image by supporting American businesses
- Reducing environmental impacts of global shipping
- Increasing the distribution and delivery speeds
- Taking advantage of government incentives
- Reducing cost gaps and tightening up budgets
- Gaining increased oversight over the production process
- Becoming closer with suppliers and customers
And while these reasons for reshoring are all well and good, there are also significant challenges that companies face along the way. One such challenge is surmounting a significant advantage that offshore companies typically hold over domestic ones: the ability to produce complete products from start to finish. Additionally, companies may struggle with reshoring because of some of the following hurdles:
- The costs associated with bringing operations back to the United States, as well as the costs of keeping them there long-term.
- Lack of skilled workers in the United States. The “skills gap” left by decades of offshoring is wide and will require additional training programs to surmount.
- Navigating foreign contracts and deals, which reshoring could disrupt (leading to a fair share of legal hassle).
Long-term, companies looking to reshore will have to consider the pros and cons of their sourcing strategies, and consider how their subsequent actions will affect economic situations at large in addition to their own bottom lines.
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