The Rise of Reshoring: Is This Trend Here to Stay?

Over the last few decades, the global electronic equipment sector, which encompasses OEMs and their supply chain partners, has shifted production from high-cost manufacturing centers to low-cost countries such as China, Mexico, and Vietnam. 

These offshore manufacturers have recently been repatriated to their home countries due to increased labor costs. Since the COVID-19 pandemic, the reshoring trend has accelerated, and the U.S. is leading the way. Join us as we explore how this trend could evolve in 2024 and beyond. 

How The Pandemic Accelerated Reshoring Efforts 

Simply put, reshoring is the process of repatriating manufacturing operations that were previously outsourced to low-cost countries. For example, China reported the first case of COVID-19 in December 2019, which led to the global pandemic and exposed vulnerabilities in global supply chains, including electronics. These supply chain disruptions impacted the bottom lines of OEMs worldwide.

The pandemic spotlighted the elevated risk to the global supply chain, forcing them to reconsider their global footprints. For example, China’s zero-COVID policy resulted in the shuttering of factories, which exacerbated the already challenged supply chains. Another issue was the steady increase in workers’ wages at offshore manufacturing facilities, which have narrowed and, in some cases, eliminated the cost advantage of offshoring. 

One example is the average yearly wage in the Chinese manufacturing sector, which has more than tripled from 30,700 renminbi in 2010 to 105,600 renminbi in 2023. American companies are evaluating the economic benefits of manufacturing abroad compared to the U.S. Given the current market conditions, many are choosing domestic production.

Factors Influencing Reshoring Efforts in the United States

For many manufacturers, reshoring is no longer just a nice-to-have option; it has become financially viable. According to Reuters, more than 80% of US manufacturers are evaluating reshoring some or all of their production back to the U.S. to increase company profits, reduce imports, and regain control of manufacturing jobs.

The Reshoring Institute surveyed nearly 500 Americans nationwide and asked if they prefer to buy products labeled “Made in the USA,” and if so, if they would be willing to pay more for these items. 

Almost 70% of respondents said they prefer American-made products. Over 80% said they would pay up to 20% more for domestically-made products. The survey results indicate that many Americans believe domestic products are better quality than those in other countries. 

In 2022, the U.S. government incentivized reshoring by including it in the CHIPS and Science Act, which became law in August 2022. The Act provides $280 billion in new funding to promote the domestic development and production of semiconductors. Tax incentives and other financial support are in place to encourage companies to bring their operations back to the United States.

In addition to lowering taxes, the U.S. government adjusted trade policies and tariffs to promote domestic manufacturing. In 2021, the U.S. generated $85 billion of tariff revenue, a 158% increase compared to $33 billion of the tariff revenue in 2017. 

3 Factors Driving Reshoring Efforts Globally 

While reshoring provides advantages, it also presents challenges. When deciding to bring production home, companies must consider the availability of skilled domestic labor and infrastructure. Still, the reshoring trend makes it clear that an increasing number of businesses find it advantageous to produce their goods in the United States.

For example, a recent CEO survey conducted by Kearney, a management consulting company, found that 96% of respondents were either evaluating reshoring their operations, have decided to reshore, or have already done so.

The diminishing cost benefits of offshoring, amplified by increased expenses and exacerbated by the disruptions caused by the COVID-19 pandemic, have led companies to reconsider their outsourcing strategies. This is especially true in the U.S., where government programs incentivize domestic production.

A trifecta of factors is driving reshoring in the electronics manufacturing sector: 

1) Product Quality North American OEMs want to reduce product quality issues that they find in offshore manufacturers. By localizing their supply base and shortening the supply chain, they can gain greater visibility into the overall quality of their manufacturing processes. 

2) Supply Chain Risk – Electronic manufacturers strive to minimize supply chain risks, relocating manufacturing closer to core markets. It also bolsters the integration of advanced software solutions for real-time inventory management and scenario planning.

3) Intellectual Property Protection – Finally, Reshoring’s emphasis on intellectual property protection allows companies to maintain rigorous standards, swiftly address issues, and safeguard proprietary technologies against counterfeiting and intellectual property theft, making it an appealing choice for businesses striving to maintain their competitive edge.

One recommended option is to reshore with a U.S. contract manufacturer that offers North American OEMs reliable, high-quality products. This translates to a higher-value manufacturing solution and reduced risk. U.S. contract manufacturers maintain high standards and have earned a reputation with industrial companies for high-quality products.

A significant advantage to partnering with a U.S. contract manufacturer compared to an Asian contract manufacturer is not dealing with a 14-hour time difference. This is especially important when dealing with urgent matters that cannot afford a delay. 

Reshoring with a U.S. contract manufacturer streamlines the OEM’s logistics, reduces the risk of logistics delays and cost spikes, and secures brand reliability and consumer trust.

At Supplyframe, our intelligence ensures that today’s electronics industry leaders can prepare for anything. With real-time and AI-driven insights, organizations can transform their entire procurement process and adapt quickly to emerging trends or shifts in supply chains. 

As reshoring becomes more of a focus in the U.S. and globally, it’s important to monitor the trends driving the industry forward in the coming year. Discover the 10 trends defining global electronics in 2024 to learn more! 

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