Reshoring: What’s the Future for Products and Services Made in America?
According to a recent survey of supply chain professionals, the COVID-19 pandemic interrupted 98% of global supply chains. Among the most disruptive supply challenges was the procurement of personal protective equipment, pharmaceuticals and semiconductors. Companies that had outsourced manufacturing to other countries experienced firsthand the types of risks associated with offshoring.
The previous administration placed a huge emphasis on reshoring U.S. manufacturing, and the current administration is reiterating that call. Within days of his inauguration, President Biden signed an executive order that increased the domestic threshold for companies to meet to win federal contracts. The order also is designed to limit Chinese clean-tech exports and encourage offshore manufacturers specializing in clean-tech supply chains to relocate to the U.S. The objective is to enable America to produce and scale its own solar, electric vehicle and battery production by bringing supply chains closer to U.S. customers, or at least to rely on countries considered allies. Tech experts consider data to be “the new oil” and therefore it is vital that the U.S. become more self-sufficient in developing and manufacturing semiconductor technology.1
The call for reshoring to generate domestic jobs, data and energy independence is popular, bipartisan and likely inevitable to some extent. Market sectors poised to benefit include construction engineering and machinery, factory automation and robotics, electrical and electronic equipment manufacturing, application software and other auxiliary services. Moreover, North American, European and South Asian banks should see enhanced economic activity associated with reshoring.2 If you’re interested in ways to incorporate reshoring growth potential into your portfolio, please give us a call.
With that said, the decision to bring operations back to the U.S. involves a lot of considerations. These include the risks of running out of inventory, potential labor strikes, tariffs, intellectual property rights, government incentives and the value of the Made in USA label — not to mention the impact of future pandemics. One of the biggest challenges is reskilling the U.S. labor force to manufacture things like semiconductor chips used in mobile phones. We do not currently possess that level of expertise on a mass scale, so it will take time and resources to train our labor pool to the level of Germany, Switzerland, Japan and other countries.3
Companies (and by extension, shareholders) also need to see a return on their reshoring investments. In addition to corporate management exploring ways to offset the higher operating costs associated with reshoring, policymakers are expected to facilitate this effort via tax breaks, low-cost loans and other subsidies.
The “State of North American Manufacturing 2021 Annual Report” found that manufacturers are more concerned with the higher costs associated with reshoring than they are with other risks, such as supply chain shortages, proximity to market, demand for U.S.-made products and potential shipping disruptions.4 In other words, the carrot for reshoring needs to be worth their effort from a strictly financial perspective. That will be much harder to achieve given the lack of skilled workers, higher cost of wages and potential labor shortages in the U.S.
The other factor is that Asia not only showed supply chain resiliency during the pandemic, but its growing population represents a tremendous market for U.S. companies. This means they are less inclined to move operations to the U.S. and subsequently incur higher shipping costs to get the goods back to the lucrative Asian consumer market.5
Content prepared by Kara Stefan Communications.
1 Bank of America Merrill Lynch. 2021. “Made in America.” https://www.bofaml.com/en-us/content/reshoring/made-in-america.html. Accessed June 22, 2021.
2 Bank of America Merrill Lynch. July 23, 2020. “The USD 1 trillion cost of remaking supply chains: Significant but not prohibitive.” https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID20_0734/cost_of_remaking_supply_chains.pdf. Accessed June 16, 2021.
3 Deborah Abrams Kaplan. Supply Chain Dive. April 8, 2021. “Supply chains do the math on reshoring’s pros and cons.” https://www.supplychaindive.com/news/supply-chains-reshoring-decisions-sourcing-manufacturing-china/597596/. Accessed June 22, 2021.
4 Edwin Lopez. Supply Chain Dive. June 7, 2021. “Supply chain managers shift reshoring focus to total cost of ownership.” https://www.supplychaindive.com/news/inventory-supply-chain-managers-TCO-reshoring-Thomas/601148/. Accessed June 22, 2021.
5 Matt Leonard. Supply Chain Dive. June 17, 2021. “Tariffs, pandemic may not be enough to drive reshoring.” https://www.supplychaindive.com/news/reshoring-china-north-america-supply-chain-biden-forecast/601971/. Accessed June 22, 2021.
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