Reshoring in US: Need for Locally Resilient Supply Chains

US companies are increasingly reshoring their operations from China in response to supply chain disruptions and global uncertainties. CEOs in the US are investing in emerging technologies to enhance productivity and gain a competitive edge. The reshoring movement aims to build locally resilient supply chains and mitigate future risks. By adopting reshoring, the US can strengthen its manufacturing sector, foster economic growth, and create sustainable jobs.

Lately, the global business landscape has experienced a noticeable shift as US companies increasingly seek to bring their manufacturing operations back home. The ramifications of this paradigm shift in global manufacturing are notably evident within the US at present. Over the past year, the construction of new manufacturing facilities jumped 116%. Furthermore, on a national scale, the aggregate industrial space currently under construction exceeds 690 million square feet, representing a significant rise from the previous year's record of 592 million square feet.

China, which has long been considered the manufacturing hub of the world, is seeing its reign over this industry slip. Moreover, Russia's invasion of Ukraine and ongoing repercussions of COVID continue to cause major disruptions on shipping operations. As a result, several companies are forced to reassess their sourcing strategies.

Many CEOs in the US are embracing reshoring, along with investing in automation, digitization, and emerging technologies, to boost local resilience and gain a competitive advantage. The US is proactively advancing its initiatives to incent domestic manufacturing. The top industries adopting reshoring are electrical equipment, computer and electronics, chemicals, and transportation. Electric vehicle batteries were the most common products to be reshored in 2022.

Companies utilizing reshoring include tech giant Apple, which is relocating an increasing number of manufacturing sites to the US (especially California), with the aim of diminishing its reliance on manufacturing in China. In fiscal year 2021, Apple released a comprehensive supplier list, revealing that 48 of its 180 suppliers had transferred certain operations to the US by September 2021. This strategic move reflects Apple's commitment to diversifying its production locations and expanding domestic manufacturing capacities.

Why Reshoring?

Reshoring offers numerous advantages to the US economy such as:

• Balanced trade and budget deficit: Through reduced imports and increased exports, reshoring can effectively enhance the US trade balance while decreasing dependency on foreign borrowing.
• Supportive legislation: Recent legislative measures, such as the Inflation Reduction Act and the CHIPS and Science Act, also encourage reshoring activities, as they drive domestic manufacturing of components used in electric vehicles, energy-efficient equipment, computer chips, and defense machinery.
• US-China tension: The geopolitical tensions between the US and China have been growing for an extended period. The trade war in 2019 greatly intensified the strained relationship between the two nations. Moreover, the outbreak of COVID exacerbated existing logistical challenges, prompting US companies to consider the feasibility of relocating their supply chains away from China.
• Reduction of unemployment: Reshoring aids in the creation of additional jobs in the manufacturing and associated sectors, leading to lower unemployment rates and improved financial well-being of workers. As per an industry report, in 2022, over 364,000 manufacturing jobs returned to the US, reflecting a substantial 53% increase from the previous year. Remarkably, about 1.6 million manufacturing jobs that had been outsourced since 2010 have been successfully reintegrated back into the US.
• Skilled workforce: By investing in education, training, and apprenticeship programs, reshoring facilitates the development of a proficient and competitive workforce capable of supporting innovation and bolstering productivity.
• Lower product cost: By accounting for all concealed expenses linked to offshoring and outsourcing, such as transportation, inventory, quality, and risk factors, reshoring can lower product prices for manufacturers and consumers alike.
• Environmental and social benefits: By decreasing transportation distances and emissions, reshoring effectively conserves resources and mitigates climate change effects.

How to ensure the success of reshoring activities:

• Automation and Digitization – CEOs investing in reshoring are actively automating manufacturing processes and implementing enterprise-wide software to digitize their workflows. Automation not only cuts down labor costs but also improves productivity and product quality. By embracing emerging technologies such as machine learning and artificial intelligence, firms can gain valuable insights, optimize production, and enhance decision-making capabilities. This technology-driven approach enables businesses to remain competitive in the global market.
• Technology in Manufacturing – Traditionally perceived as labor-intensive and low-tech, manufacturing now leverages cutting-edge technologies and innovative practices. By highlighting the convergence of technology and manufacturing, companies can attract investments, promote innovation, and attract a new generation of talent. This shift in perception would elevate the status of the manufacturing industry as well as contribute to economic growth and job creation.
• Vocational Education – Students must be encouraged and supported to pursue vocational careers. Academic degrees are usually highly sought after, while vocational education remains undervalued. By promoting vocational education and offering robust training programs, businesses can bridge the skills gap and cultivate a skilled workforce capable of meeting the demands of advanced manufacturing. Collaborations between educational institutions and industry leaders are crucial to equip students with the requisite skills and knowledge for future manufacturing careers.
• Public/Private Investment – Public-private partnership is essential for the success of reshoring. Advocacy groups, policymakers, and industry leaders must work together to drive much-needed investments in small- and mid-sized manufacturers. Government incentives, tax breaks, and grants can encourage businesses to reshore and invest in advanced technologies. Furthermore, fostering an environment conducive to innovation and R&D would attract investment and enable the growth of high-tech manufacturing sectors.

Challenges

Reshoring provides significant advantages, but it is not without challenges. Cost considerations are a primary concern, as offshore production often offers lower labor costs. Moreover, US manufacturers face the challenge of distinguishing themselves and augmenting the value of their products and services, as certain countries continue to offer reduced labor costs and relaxed regulatory environments for manufacturing.

Shortage of manpower is another major hurdle. US manufacturers must allocate resources to education, training, and apprenticeship initiatives to create a talent pool.

Reshoring in the US symbolizes a transformative shift in the global manufacturing landscape. As companies seek to build locally resilient supply chains, they invest heavily in automation, digitization, and emerging technologies. By adopting reshoring and incorporating advanced manufacturing practices, businesses can set themselves for long-term success. However, to fully realize the potential of reshoring, it is essential to advocate public-private cooperation, rebrand manufacturing as a tech-driven industry, and actively support vocational education. By addressing challenges and seizing opportunities, the US can establish itself as a manufacturing powerhouse, encouraging economic growth and creating sustainable jobs.