Resurgence of Reshoring in Electronics Manufacturing
Efforts to bolster UK supply chains and incentivise manufacturers to favour domestic production have been gaining momentum. Notably, the electronics manufacturing industry has witnessed a resurgence of reshoring. Once considered a diminishing practice, reshoring is gaining momentum as companies re-evaluate their global supply chain strategies, with a focus on achieving cost efficiency and reduced supply chain risks.
The Historical Landscape of Offshoring
In previous decades, electronics manufacturers embraced offshoring as a means of cutting production costs. Countries with lower labour costs, such as China, Philippines, etc became primary outsourcing destinations. While this approach initially seemed financially advantageous, it came with its set of challenges. Supply chain disruptions, rising transportation costs, and quality control issues started to emerge, prompting a re-evaluation of offshoring strategies.
The High Cost of Offshore Dependencies
The resurgence of electronics manufacturing reshoring is fuelled by a re-evaluation of the true cost associated with offshoring. While labour may be lower in certain offshore locations, other expenses like shipping, tariffs, and inventory carrying costs accumulate, diminishing the perceived financial benefits. Moreover, the extended supply chains make it challenging to respond swiftly to market fluctuations, hindering companies from adapting quickly to changing demands.
Cost Efficiency through Automation
Advancements in technology, particularly in automation and robotics, play a crucial role in the resurgence of reshoring. The increasing cost of labour in some offshore locations, coupled with the decreasing automation costs, makes domestic or nearshore manufacturing more attractive. Automation not only reduces labour costs but also enhances precision and efficiency in the production process.
Mitigating Supply Chain Risks
The global pandemic highlighted vulnerabilities in lengthy and complex supply chains, prompting companies to reassess the risks associated with offshore dependencies. Disruptions caused by lockdowns, transportation restrictions, and sudden shifts in demand highlighted the importance of supply chain resilience. Electronics manufacturers felt the impact of these disruptions acutely, as components and materials often traverse multiple borders before reaching the final assembly point.
Closer Proximity for Enhanced Agility
Reshoring allows companies to shorten their supply chains, bringing production closer to their main markets. This geographical proximity enhances agility, enabling faster response times to changing market conditions. Companies can reduce lead times, manage inventory more effectively, and adapt swiftly to shifts in consumer demand. This newfound agility becomes a competitive advantage, especially in an industry where time-to-market is critical.
Another pro of making things within the home market, is the opportunity to bring new ideas to life. As said by Julia Moore, Chief Executive of GMTA, the trade body and head of Reshoring UK:
“There is an intrinsic value attached to making things here in the UK, not least being the opportunities to innovate.”
Quality Control and Intellectual Property Protection
Quality control is another significant factor contributing to the resurgence of reshoring. Proximity to manufacturing facilities allows companies to have better oversight of the production process, ensuring higher quality standards. Additionally, the protection of intellectual property becomes a more manageable task when manufacturing is conducted in locations with stronger regulatory frameworks and legal systems.
Government Initiatives and Incentives
In some regions, government initiatives and incentives have played a role in encouraging reshoring efforts. Policymakers recognise the importance of a robust domestic manufacturing sector for economic growth, job creation, and national security. By offering tax breaks, subsidies, and other incentives, governments aim to attract companies back to their shores and stimulate local manufacturing.
The Future Outlook
McKinsey's report on geopolitics and the dynamics of global trade provides an in-depth analysis of the necessity to adjust supply chain strategies in response to evolving global trade patterns. The reshoring process in electronics manufacturing not only entails logistical adjustments but also demands strategic responses to these global shifts, presenting opportunities for both market expansion and innovation.
With Britain now the 8th largest manufacturer globally, having recently overtaken France, the government aims to support sectors where the UK excels. The UK’s status as a global hub for advanced manufacturing is emphasised, with world-leading automotive, aerospace, maritime and space sectors. The investment package builds on recent wins - such as Tata’s £4 billion gigafactory, and the £600 million BMW invested to build the next generation of electric Mini - and ensures that the government can continue to help create jobs, grow the economy, and secure the future of British manufacturing.
As the trend towards reshoring gains momentum, it is essential for companies to carefully evaluate their specific circumstances, weighing the benefits of cost savings and reduced supply chain risks against potential challenges. While reshoring is not a one-size-fits-all solution, its resurgence in the electronics manufacturing sector signifies a shift towards a more balanced and strategically aligned approach to supply chain management.
Conclusion:
The COVID-19 pandemic prompted widespread reassessment of the reliability of existing supply chains. Recognising this, bringing manufacturing operations closer to home can mitigate such risks—an acknowledgement highlighted by the United Nations.
“Automation and reshoring allow for more flexible adjustment to changing demand”
- Pier Giuseppe Fortunato, Economic Affairs Officer at the United Nations Conference on Trade and Development (UNCTAD).
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