At the present time, there is much talk of reshoring among manufacturing companies and, in particular, among companies that use EMS (electronic manufacturing services) providers. But what is reshoring, why is it currently such a hot topic and what are it's potential benefits?
In short, reshoring means moving manufacturing processes from overseas locations – typically in the Far East – to the country where the product being manufactured will be sold. Reshoring is a reversal of offshoring, a trend which peaked a decade or so ago and saw the transfer of manufacturing to countries that nominally had low labour costs. Closely related to reshoring is nearshoring, where manufacturing is carried close to, but not necessarily in, the country where the goods will be sold. For European companies, for example, nearshoring might involve manufacturing in North Africa or Romania.
A major factor in the upsurge of reshoring was the COVID epidemic and the resulting restrictions on travel and trade, some of which have only just been relaxed after almost three years. These restrictions made it more difficult to work with distant suppliers, particularly those in the Far East, and this led many companies to re-evaluate the merits of offshoring. The results were often surprising. Wage rises mean that many of the notionally low-cost countries are no longer as competitive as they once were, and shipping costs have increased dramatically. Local suppliers can offer better delivery times and greater flexibility. And working with local suppliers provides stability and resilience, even in the face of globally disruptive events like the COVID pandemic.
While reshoring is increasingly attractive across much of the manufacturing sector, it has particular benefits in relation to EMS operations. For these, labour costs typically account for only 20% of overall costs, so the higher wage rates in reshoring destinations have comparatively little effect. Electronic products also tend to evolve rapidly with frequent changes that are much more easily handled when working with a local supplier. If the EMS supplier is in the Far East, thousands of products may be in transit when a design change is needed, and items to the revised specification will take many weeks to arrive.
Better control is another key benefit of local manufacturing. Should a problem occur, visiting the EMS supplier in person is often a quick and effective way of finding a solution – but not if the supplier is on the other side of the world. Finally, stability is a crucial issue. Ultimately, world trade is subject to the influence of international politics and, at this time of increasing uncertainty, working with local suppliers provides useful insurance against the possibility of adverse developments.
This article has looked at some of the benefits of reshoring for EMS operations. Nearshoring shares most of these benefits and can sometimes offer lower labour costs than true reshoring. Deciding whether to reshore or nearshore – or, indeed, whether to stay with offshore operations – is a process that must be handled carefully, but it’s also one where Asteelflash, a leading EMS supplier with global operations and experience, can provide invaluable advice and support.