Reshoring is the practice of transferring a business operation that was moved overseas, back to the country in which it was originally relocated. The concept is widely circulating in business and popular media now. In fact, the term ‘reshoring’ had its highest-ever Google search frequency in July 2020.
However, just because people are talking about reshoring or claiming its merits doesn’t mean it will happen; cognitive biases can trick us like that. We must examine the factors that could drive a change in investor behaviour.
In addition to the pandemic, other trends have been influencing business location decisions and supply chain planning. These include: geopolitical tensions; trade/tariff disruptions; growing nationalism and protectionism; heightened attention to national security and intellectual property protection; innovation in production and sourcing; rising costs in key manufacturing regions; demand for faster deliveries; and increased attention to climate change and ‘greening’ supply chains.
Unctad’s World Investment Report 2020 shows how supply chains are shifting but also why it can be difficult to do so. Corporate supply chains can be measured along three primary dimensions (length, governance and geographic distribution) and many sub-factors. Supply chain design and implementation can vary dramatically, therefore, in their number of steps, modularity, complexity, specialisation, degree of outsourcing, customisation, and location. This is where global site selection meets business strategy.
Global FDI flows are forecast to decline 40% in 2020, and a further 5% to 10% in 2021. So where will companies locate – or relocate – key projects within their global value chains? The US and Canada hold the top two global positions in the Kearney FDI Confidence Index 2020 (based on pre-Covid-19 surveys). IMD’s 2020 World Competitiveness Ranking puts Canada eighth and the US tenth among all countries. That bodes well.
Despite much lower third-party rankings, Mexico, Brazil and other countries will also fulfil important roles by providing opportunities in regional arbitrage, specialisation and scale for North American and global supply chains.
In some sectors – and for some companies – bringing production home (reshoring) may be the answer. Regionalisation, or nearshoring, can also shorten supply chains but without domestication. Other solutions exist, too, such as diversification and replication of production and distribution points, both of which maintain or increase geographic and governance complexity.
What is clear is that companies must now do the hard work of reimagining and scenario planning the what, how, and where of their future supply chains.
Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. E-mail: email@example.com
This article first appeared in the August - September edition of fDi Magazine. View a digital edition of the magazine here.