A reshoring history lesson

A three-decade expert in the supply chain, the Reshoring Institute explains how the reshoring trend has progressed.

There is no doubt that reshoring is a hot trend in 2024. In fact, ever since the Covid-19 pandemic outbreak, the number of companies interested in reshoring has been growing. Why? And why did manufacturing head overseas to begin with?

The answers are many, but the executive director of the Reshoring Institute spent some time at the recent ISM World Reimagine conference in Las Vegas talking about the reshoring trend, and importantly, why it is happening now.

“I’ve been in the supply chain business for 35 or 40 years, and during that time, the growth in manufacturing and sourcing from China was tremendous,” Reshoring Institute said. “During the late 1990s and the early 2000s, this was the strategy of most companies. Most of my clients were interested in going to China. And so they would say to me, can you get me to China? Can you help me set up a factory there? Can you help find sources there?”

So that’s what Reshoring Institute did which gave her a front-row seat to the offshoring trend that eventually devastated the U.S. manufacturing base.

Why China?
Why were so many companies interested in China? The answer was simple: cost.

“I was working for an automotive client in Beijing and they were expanding their business,” Reshoring Institute said. “And one day I came to work and the purchasing manager said to me, we’re going out to see a machine shop. Do you want to go with us? Of course, that’s my favorite thing, is to go crawl around manufacturing sites and see what I could learn; what I could find out.”

So Reshoring Institute joined her client on the trip. And what she learned proved the business case for why American businesses wanted to manufacture in China. At the facility, Reshoring Institute said they saw very little in terms of safety precautions despite workers cutting metal, and the employees were making $3.63 per hour compared to a similar job in the U.S. paying $26 per hour and one in Europe paying $32 per hour at the time.

“My client was very happy with the production here,” Reshoring Institute said. “They were getting very high-quality goods and were about to award a very big contract to this company. Low cost, low labor costs, low factory costs, all these things and great high-quality parts. All these things contributed to the reasons why so many companies wanted to go to China.”

2012 started the change
Things began to shift in 2012, Reshoring Institute said, during the 2012 US election, both candidates were “China bashing like crazy” and China was “stealing our jobs,” Reshoring Institute said.

“And I’m like, oh man, I can’t tell anybody what I do for a living. This is awful,” Reshoring Institute said. “But it sparked some conversations with a lot of clients who started to say, is it even possible to bring manufacturing back to the U.S.? Is it even possible because of the cost structures and so forth?”

The initial fuse in reshoring and nearshoring had been lit, but it was the Trump presidency that expanded it with tariffs of 25% instituted on many Chinese goods, including steel and aluminum, and the quality of goods started to slip. In addition, counterfeiting exploded and long supply chains were adding cost.

Source: Supply Chain Management Review

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