Today we published a new report on manufacturing in the UK, in partnership with Squire Sanders. The research looks at the factors that make UK manufacturers competitive; what's great about making things in the UK and at one particular type of investment decision - switching production or suppliers from low labour cost economies back to Britain....or reshoring for short.
There has been a significant increase in public interest in the reshoring phenomenon over the past couple of years. But how significant is the trend itself?
Here's five things you need to know about reshoring...
In today’s manufacturing sector, an emphasis on quality and brand reputation remains key. In identifying the three main areas of competitive advantage, product quality was highlighted by almost half of all respondents in our survey.
Customer service and maintaining a strong record of on-time delivery to customers are identified by at least one-third of surveyed companies as the main areas in which they compete. These trends have come to the fore in recent years, when a climate of uncertainty and reduced order visibility have meant that manufacturers who could move quickly and deliver on commitment were well placed to thrive.
Source: EEF/GfK Make it in Britain Survey
Some 84% of survey respondents emphasise an advantage to their business brand and reputation from the production of UK-made goods, the quality of which is held in high regard around the world.
And having worked hard to establish high-value brands in the market, companies are understandably keen to protect their intellectual property. In an environment of widely differing levels of regulatory compliance around the world, more than two-thirds of manufacturers in our survey highlight the benefit of production in Britain in terms of reducing intellectual property risk.
Access to the right suppliers is another critical factor, especially among smaller firms. More than four-fifths of companies in our survey identify the quality of suppliers as an advantage to being based in the UK.
Source: EEF/GFK Make it in Britain Survey
- One in six companies has reshored production in the past three years
We are seeing a movement of production that was previously done in low-cost economies moving back to or closer to UK markets. EEF’s survey shows that in the past three years one in six respondents have reshored production in house, and the same proportion has switched to a UK supplier from a low-cost country.
Reshoring is not limited to any specific size or characteristic of company, and we are seeing all sizes of firms from all sectors moving production and suppliers closer to home.
- Quality and delivery times are driving reshoring decisions
Among the top reasons for reshoring amongst all sizes of firms is greater certainty around delivery times and shorter delivery times. According to our survey, a third of companies are bringing production back to the UK for reasons of delivery certainty and 30% to increase speed of delivery.
A guarantee of quality is critical for a large minority of companies who report this as contributing to their competitive advantage in the market. Almost half of manufacturers believe that the quality of goods sourced from lower-labour-cost economies is getting better, with larger companies seemingly better able to secure quality improvements, but confidence that overseas operators will supply to the required specifications is not sufficient for many. Quality issues have been among the top reasons for 35% of reshorers.
Source: EEF/GfK Make it in Britain Survey
For a lot of companies the reshoring decision is strategic - improving quality and service and minimising supply chain risks. But there are bottom line benefits too.
Nearly three in five companies who have reshored in the past three years report profits increasing as a direct result, and just under a third say that profits have stayed the same. The increases in both turnover and profitability are most likely to be moderate – an increase of up to 10%; however, some firms do see increases above that proportion.
It is not just companies who have made the decision to reshore who have realised the benefits. Companies in the supply chain who have received orders that were previously sourced from low-cost overseas locations also report benefits. Of companies who report increases in profitability or turnover, the majority say it is moderate of up to 10%.
Over half of companies report their employee numbers rising as a result of winning reshored work, but again this is most likely to be moderate, with the largest proportion of companies saying gains of between 1% and 5%.