The Challenges of Reshoring
Relocating manufacturing to the West requires more than moving factories.
For much of the past decade, many have touted the reshoring of electronics and especially printed circuit boards and electronic assemblies. Many reasons have been cited as to why reshoring is now taking place, from supply chain difficulties to nationalism, to the marketing optics of where products are made.
Indeed, no matter where you are from, it is always a nice feeling to buy locally, and while supply chain issues have been a serious problem over the past few years thanks in large part to tariffs and Covid, these challenges have seemed to impact all parts of the world relatively similarly. Because – or despite – these desires and challenges, the rate of reshoring, as measured by employment expansion, has been escalating, with the estimated annual number of jobs created attributed to reshoring topping 350,000 in the US alone.
That said, the challenges in successfully reshoring are still significant and basing success purely on employment levels may be misleading. Looking at the challenges, there have always been four: capital, facilities, technology and people, with now the possible addition of a fifth, inflation, to contend with. And two on the list may end up putting a cap on reshoring, at least in certain industries.
Capital is always the first challenge. Money is needed for everything from funding the analysis and planning process of where and how to move manufacturing, plus acquiring the equipment, facilities and staff to execute that plan. The past couple decades have generally been good for business. With relatively low interest rates, the cost of capital has been attractive, and capital has been readily available. More on this later.
Facilities, if not immediately available, can be built in a relatively short period of time. Determining the ideal location differs based on industry and product type and boils down to where suppliers, customers and labor are located. In any relocation of manufacturing, whether across the street or across the globe, facilities can be modified or created.
Technology is where the slope begins to get slippery, especially for reshoring electronics. This encompasses a wide assortment of inputs, first being availability of components, parts and other items needed to produce a given level of technology. Does reshoring a facility enable you to locally access them, or are you going to be reliant on a lengthy and costly supply chain?
Next is reshoring to a location with the R&D capabilities to ensure your product can be refined and remain competitive. Finally, there’s the human element: are enough technically competent people available to enable a high-tech facility to operate smoothly with minimal downtime – not only on the shop floor but also in support services? One reason many businesses went offshore years ago was explicitly to have the technological resources readily available and have access to the latest in innovative technology. Reshoring requires a significant understanding of technological needs as well as a realistic understanding of available technology resources after the move. Underestimating the availability of and potential cost required for technological resources could create a costly disadvantage.
Labor is the biggest challenge in reshoring, especially when relocating to North America. With a shrinking manufacturing base over the past few decades, those skills have not been a main element of schools and education. An aging experienced population has held the manufacturing jobs that have remained. Replacing those retiring manufacturing people is a daunting challenge in itself, and adding hundreds of thousands of new positions that require those same basic skills that are not taught in today’s high schools, tech colleges and universities could end up being the gating challenge to successful reshoring. The engineer pool is not the problem. Rather, it is finding workers in the trades: machinists, welders and technicians operating plating lines, imaging systems, lasers, waste treatment systems, and everything else that industry needs yet is in such short supply – especially in North America.
To complicate all this, in some parts of the world inflation is now escalating at levels not seen in decades. The cost of everything from capital to facilities to technology and labor is increasing in the areas that are trying to reshore manufacturing, while in much of Asia, where the reshoring is coming from, deflation is taking place. The result is that moving from low-cost areas where costs are falling to higher-cost areas where overhead is escalating piles more complication on an already complex endeavor.
Companies will continue to review and relocate manufacturing and research facilities. For North America to be the big winner in any manufacturing shift, providing training for workers in manufacturing plants and technical support is critical. Three decades of deemphasizing the importance of manufacturing and its required skills must be reversed, fast, so an available workforce can be amassed.
Capital cost and its availability will become a bigger challenge. With higher interest rates and more scrutiny on bank balance sheets, more attention will be needed to determine how to fund the reshoring effort. The result of all may be less reshoring and more nearshoring to locations that are politically stable, have ample technological resources, and have a readily available workforce.
While I question whether North America will be able to boast that 300,000-plus jobs have been reshored year after year, I do know that over time, more manufacturing growth will return here, and that is always good.