Is There Momentum for Reshoring in 2024?

Reshoring, the process of bringing back manufacturing and production activities to the United States from overseas, has been gaining momentum in the past few years due to various factors, including supply chain disruptions, geopolitical considerations, economic decisions, and a renewed focus on domestic manufacturing capabilities and resilience. Legislative support and state and local economic incentives has also sweetened the pot a bit. 

Several trends and factors have influenced the reshoring movement and will continue to shape its momentum in 2024 and beyond. 

Who’s Doing All the Reshoring?

There is clear momentum for reshoring by companies in Western countries. In some cases, this is not full-scale reshoring but rather friendshoring, or at least geographic diversification. In other cases, this involves moving a portion of critical production and logistics capacity back to home countries, and recent survey results illustrate clear momentum for this in the US.

According to data gathered by the Reshoring Initiative, the combination of direct reshoring and foreign direct investment (FDI) in the US has caused a parabolic increase in manufacturing job announcements per year since 2020. The trend is very clearly pointing upward as can be seen in the graph below. Direct reshoring continues to outpace FDI by a 2:1 ratio, indicating that jobs formerly sent overseas to a contract manufacturer are indeed being brought back onshore.

US job creation from reshoring and foreign direct investment (FDI). Source: Reshoring Initiative

As major manufacturers reshore or expand domestic operations, these new operations will support their supplier bases, which includes PCB manufacturers. The semiconductor sector is getting the most attention for its onshoring efforts, with capital investments in new production capacity reaching a significant fraction of $1 trillion. With so much capital being invested, why are companies making such big bets on reshoring?

Why Reshoring?

Supply Chain Resilience. The COVID-19 pandemic highlighted vulnerabilities and risks associated with global supply chains. Emphasizing local sourcing, production, and manufacturing can enhance supply chain resilience, reduce exposure to disruptions, and ensure timely availability of essential goods, components, and materials. Reshoring can enhance supply chain efficiency, strengthen supplier relationships, and improve customer service, by reducing lead times, improving inventory management, and minimizing manufacturing and service disruptions.

Geopolitical Considerations. Changes in trade policies, tariffs, regulations, and geopolitical dynamics can influence a company’s decisions regarding manufacturing locations, trade relationships, and reshoring initiatives. Reducing dependence on specific regions, countries, and suppliers can drive reshoring efforts to establish more control, flexibility, and security over critical supply chain components. Shorter distances between buyers and sellers typically improve communication and collaboration. 

Economic Incentives and Policy Support. Through federal legislation like the Inflation Reduction Act (IRA) and the CHIPS and Science Act, the United States government introduced incentives, subsidies, tax benefits, and policies to encourage reshoring, promote domestic manufacturing, create jobs, stimulate economic growth, and enhance national competitiveness. There are also state and local tax incentives. 

Cost Considerations. Reshoring may involve higher manufacturing and production costs compared to offshore locations, primarily due to higher domestic labor costs. But factors such as total cost of ownership, quality assurance, intellectual property protection, and proximity to markets and customers can influence the economic feasibility and attractiveness of reshoring investments. 

Product Integrity. Reshoring can facilitate tighter quality control, adherence to standards, and consistency in product quality, addressing concerns related to counterfeit, imitation, and substandard products sometimes associated with offshore manufacturing. Maintaining high-quality standards, product integrity, and customer satisfaction through reshoring initiatives can enhance brand reputation and credibility with customers. 

Technological Advancements and Innovation. Advancements in automation, robotics, digitalization, and smart manufacturing technologies enable more efficient, flexible, and competitive domestic production capabilities, reducing labor costs, and enhancing productivity. Investing in research, development, innovation, and technology can drive competitiveness, differentiation, and value creation in domestic manufacturing environments, promoting growth, sustainability, and resilience. 

Intellectual Property Protection. Reshoring can mitigate risks associated with intellectual property theft, infringement, and unauthorized access, ensuring the protection, confidentiality, and security of proprietary technologies, innovations, and trade secrets. Reshoring can also address concerns related to data privacy, cybersecurity, and supply chain security. 

Risks to Reshoring

In some instances, reshoring may not be the right solution. Here are some risks to analyze when making reshoring decisions. 

Financial Impacts. Reshoring may involve higher labor, operational, and production costs compared to offshore locations, potentially impacting cost competitiveness, profitability, and pricing strategies. Reshoring initiatives may require significant investments in infrastructure, technology, equipment, training, or workforce development, leading to increased capital expenditures and financial commitments. It may also disqualify you from competing in some offshore markets. 

Workforce Concerns. While reshoring stimulates domestic economies, creates employment opportunities, supports local communities, and contributes to economic growth, and development by investing in local industries, infrastructure, and workforce development. However, companies that are reshoring may face challenges related to skill gaps, workforce availability, training needs, and talent acquisition, particularly if certain skills and expertise are scarce or specialized. 

New Supply Chain Dependencies. Reshoring can increase dependency on local suppliers, partners, and resources, exposing companies to risks related to supplier reliability, capacity constraints, quality assurance, and supply chain vulnerabilities in the home country. 

Reshoring decisions should align with strategic objectives, value propositions, and corporate goals, ensuring that reshoring initiatives contribute to long-term growth, sustainability, competitiveness, and customer satisfaction. Companies must conduct comprehensive risk assessments, scenario analyses, and due diligence to identify, evaluate, and mitigate potential risks, challenges, and implications associated with reshoring strategies.

Author’s note: A comprehensive and data driven review on the status of reshoring can be found through the Reshoring Initiative 1H 2023 report.