Oh oh, the politicians are getting excited and proclaiming the return of businesses they thought had been lost forever to lower cost locations overseas. Their new joy is called reshoring and, in the UK, they are so happy that they have created a map of UK businesses that have returned operations to the UK. There have also been a number of European surveys undertaken recently by industry associations and professional services companies to gauge the extent of this reshoring trend.
Reshoring is when business operations based overseas return back to the home country. Most of the headlines are about manufacturing, but reshoring can also apply to customer support operations, logistics and headquarters operations.
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The surveys are all similar in identifying that about two-thirds of companies are not interested in reshoring. However, the remaining third represent a target market for home locations. In the manufacturing sector, reshoring is most likely to come from businesses producing heavy machinery and other large products that are expensive to transport to end markets; products that are changing frequently due to consumer demand; and products where safety is a key issue. The main reasons why the operations are returning are mostly down to improved quality within the home market, better response times to customers, more cost-efficient logistics and enhanced delivery performance. Essentially, the cost-quality balance has moved back in favour of the home location.
Can reshoring bring a significant boost to Europe’s economic recovery? The politicians would certainly like it to, but it seems to be a gradual trend and, while there is some moderate employment gain, due to increased automation and use of robots in manufacturing, the big job creation numbers are not yet coming through. Perhaps the best benefit is that reshoring is good for strengthening local supply chains and improving response to customers by keeping manufacturing close to other key business operations such as research and development, design, marketing and sales.
Douglas Clark is director of Location Connections, a site selection and FDI consultancy. E-mail: douglas@locationconnections.com