The COVID-19 pandemic and other global events have forced companies to assess their fundamental operations. The main concern for American companies in 2022 is how the potential offshoring of manufacturing can mitigate the risks of instability in international trade and supply chain management.
The COVID-19 pandemic has affected 98% of global supply chains. Industries that have invested heavily in offshoring to reduce costs has led to a dramatic increase in riskaccording to an article by The New York Times. Thus, American leaders view “reshoring,” or the repatriation of industrial production and manufacturing to American soil, as an attractive opportunity.
While relocating manufacturing may not be the “cheapest” option, it may be the “most cost effective” option when balanced against the resilience and sustainability of the supply chain. ‘supply. According to 2021 Kearney Relocation Index, the main reasons that American companies consider relocating are labor cost, labor availability, delivery times, logistics costs and reducing carbon footprint. The common belief is that manufacturing jobs left the United States long ago for a more profitable offshore workforce. Recently, however, offshore manufacturing in countries like China has seen wage inflation. While the Pew Research Center estimates the relative cost of American labor has remained stable for more than a decade. Relocation could mitigate these costs and provide better service delivery, better product quality and better brand perception.
The 2021 Kearney Relocation Index found that 92% of CEOs surveyed expressed positive sentiments towards relocation. Additionally, 79% of executives with manufacturing operations in China have already moved part of their operations to the United States or plan to do so within the next three years.
Relocation efforts have taken place in many industrial sectors. Bloomberg highlights that the construction of new manufacturing facilities in the United States increased by 116% over the past year and aluminum and steel manufacturers are building new plants in the Southeast. Semiconductor chip factories in New York opened, according to a Vox article, to help mitigate supply chain disruptions in the automotive and electronics industries. To meet the growing demand of the electronics industry, semiconductor companies announced new facilities in the Midwest which should support tens of thousands of long-term jobs. Major US retailers have reportedly promised to spend hundreds of billions of dollars over the next 10 years on assets created in the country. To finish, $1 billion federal and state support to encourage domestic manufacturing highlights the impact this trend will have on our economy.
Complete relocation of manufacturing to the United States is not the only possibility – “near-shoring” or moving part of a company’s supply chain to neighboring countries of Mexico, Canada or certain Central American countries are possible prospects for future investments. The Kearney Relocation Index found that nearly 70% of CEOs surveyed said they were evaluating nearshoring, had a nearshore, or would do in those regions.
Businesses considering relocating or moving nearby should consider several possible challenges. Manufacturers may face a shortage of supplies and skilled workers in their new locations. If a business cannot easily obtain raw materials in the new location, the costs of importing those materials can reduce profit margins. Additionally, some have pointed out that access to skilled domestic technicians can hamper resettlement efforts. unless a plan is in place to train new workers. Businesses creating a transition plan should also think about tax implications, employment issues, real estate issues, and transportation availability.
Often, however, communities in the United States are eager to support the relocation or expansion of manufacturing through infrastructure improvements, job credits, and direct grants. For instance, Missouri offers incentive programs for eligible businesses for public or private infrastructure financing on capital improvement projects. Similarly, unions that support US-based companies may support measures that bring more stability to the workforce.
Rather than waiting for circumstances to return to “normal”, companies can instead work to evolve their businesses to become even more agile and resilient in our “new normal”. They should consider taking advantage of government or other programs that might support relocation.
(Legal Clerk Kennedy E. Dickson contributed to this article.)