‘Reshoring’ manufacturing – or manufacturing activities ‘coming home’ has been a recurring theme in my work over the last few years. My own take on things, based on survey work I have undertaken with Dr Lisa De Propris at the Birmingham Business School, is that reshoring really is happening but on a smaller scale than many have claimed, with around one in six local firms actually doing it, driven by concerns over costs, quality and turnaround or lead times.
Our most recent work on this has just been published in the Cambridge Journal of Regions, Economy and Society. It pulls together a whole range of studies that look at the reshoring phenomenon and looks at the drivers of, and limits to, reshoring.
Several recent large UK-wide surveys come to similar findings for the UK as a whole as our own work for the Midlands: one in six UK manufacturers have brought production back from overseas during the past year or are in the process of doing so.
The Manufacturing Advisory Service (MAS), for example, surveyed over 500 small and medium-sized (SME) manufacturing firms last year and found that – like our own local survey – around one in six firms were actually bringing production back, compared with only 4 per cent that offshored in the past year.
Around a quarter of respondents to the MAS survey said concern over the cost of offshore production was the main motive for reshoring, followed by quality (cited by 20%) and lead times (18%).
The latter issue of rapid lead times or turnaround is key in sectors such as clothing, textiles and high design content items, where fashions can change quickly and retailers wish to avoid having stock in transit for long periods hence a desire to produce near market.
Indeed, the increased variety and fashionability associated with ‘fast fashion’ have tilted the balance of competitive advantage towards firms nearer ‘home’.
In a similar vein, the firm Bathrooms.com, an online retailer of bathroom furniture, is bringing back around half of the contracts currently awarded to Chinese manufacturers to Midlands’ firms, in turn reducing the time from design to production from six months to six weeks.
Another local example of reshoring sees RDM Group, the Coventry-based engineering and automotive specialist, beginning production at a new Coventry factory, thereby enabling it to bring back production aluminium rechargeable torches for Jaguar Land Rover from China which it had previously outsourced. More products may follow.
And as with the fashion industry, rising costs overseas are not the only driver. Turn around is becoming critical, especially for premium automotive products where the consumer helps to design the final product but doesn’t want to wait months for the car to be delivered. That means more opportunity for local suppliers to provide goods and services locally and flexibly.
So, the good news is that manufacturing is indeed reshoring but maybe on less of a scale than had previously been thought, and at a national level policymakers need to think about how they can push this along, through access to finance, skills, capital allowances and an industrial policy committed to ‘bringing it home’.
Moreover, how can we make the most of this locally? For starters we can learn from experience elsewhere, especially in the United States, where the reshoring trend has been more pronounced.
Just like here, in the US, shrinking cost gaps and the desire of firms to assemble nearer to their customers are making reshoring a fertile opportunity. However, conditions on the ground are sometimes pretty hostile, with local supply chains and the skill base often hollowed out after years of off-shoring.
For example, both General Electric and Google Motorola Mobility faced huge difficulties in hiring skilled people with experience in modern precision manufacturing when they tried to reshore to the United States, and the firms struggled with local supply chains which had been hollowed out.
In the Google Motorola case most of the parts had to come from China, while GE struggled to source locally. While GE has of late made a success of its Louisville operations, Google Motorola is closing its Fort Worth plant is part because of high shipping costs.
What this US experience shows us is that reshoring is indeed a real opportunity, but isn’t a foregone conclusion. And like the US case, while a range of economic fundamentals have shifted, the actual logistics of bringing production back to the Midlands can be hard going.
Whether reshoring benefits a region like ours depends on the local availability of skills, innovation capacity, the supply chain base, support services and institutional ‘thickness’. Like the US, reshoring in the UK will play out on a region-by-region basis.
So far we have seen a great effort locally by Local Enterprise Partnerships (LEPs), suppliers, unions, assemblers and support agencies such as the MAS to work together to support the local mini-renaissance of manufacturing, especially in auto. The cooperation between some of the local LEPs over inward investment, for example, has been great to see.
That needs to go further – for example in terms of more cooperation between local authorities so that we can make the most of devolution opportunities thrown up in the wake of the Scottish referendum. That’s needed so that we can have the policy levers available to continue supporting the mini-renaissance of manufacturing locally.
Blog originally published on The Information Daily.