Reshoring - is it real?

Subscribe to Campaigning blog feeds


Reshoring; repatriation of manufacturing; essentially some reversal of the trend to outsource some production - often to a lower labour cost economy seems to be attracting quite a bit of attention at the moment. In particular some notable companies have been ramping up their manufacturing capacity in the US, with one Executive referring to the low cost offshoring trend as 'yesterday's model'. The three questions we are most often asked on the subject are

  • is it really happening in the UK?
  • what's driving it?
  • in which manufacturing sectors is it most prevalent?

So, in brief, here's what we're seeing

Yes, UK manufacturers have been returning some production back to the UK

Reshoring manufacturing back to the UK is, however, not a recent phenomenon. Back in 2009, an EEF survey showed that around one in seven companies with production in a low labour cost economy had returned some of that activity back to the UK in the previous two years. More recently, when we looked at the issue of improving supply chain resilience, some 40% of manufacturers have brought some manufacturing capacity back to their UK operations from overseas and a quarter were seeking to increase their use of local suppliers.

It's not one way traffic

Between 2009 and 2012 the proportion of manufacturing companies with some production outside the UK increased from 32% to 42% and around a quarter were expecting that to increase moderately in the next two years.

Cost, quality and certainty

For those companies looking to either return activity to their UK plants or increase their use of local supplier capability there are a number of factors driving these decisions.

While manufacturers need to be competitive on price this is not the whole story for UK manufacturers which are increasingly securing orders based on quality, service and providing complete solutions when their customers need them. While many companies in lower cost locations are also trying to move up the value chain their quality focus doesn't always match the needs of UK manufacturers. Any uncertainty about the suitability of materials used or the quality of inputs impacts on the ability of UK manufacturers to deliver product of the right quality.

The cost equation isn't just about the price of labour - for many this is shrinking as a share of the total cost of the product. Logistics and the cost of management time in managing production or suppliers spread over thousands of miles also has to be factored in. In addition, wage inflation in some emerging markets - and China stand out here - has been rising at a double digit pace and this is likely to continue in the next few years.

The high-value nature of much of UK manufacturing means that supplier relationships are more than transactional as manufacturers build collaborative relationships on new product and process developments. In this respect there are advantages to managing those activities closer to home. Furthermore, the recent recession highlighted the importance of having good visibility of key suppliers and their financial health; again something that becomes more difficult over large distances. A supply chain is a strong as its weakest component - and quickly becomes pretty fragile if a key supplier goes out of business.

Still advantages to being near the customer

Access to customers is and will remain a significant factor in investment decisions. For some sectors there may be barriers to serving some geographical markets from a UK base, local content requirements or a real advantage to having a manufacturing presence in overseas markets. And this will continue to support manufacturers' plan to establish or expand manufacturing activities in markets offering good growth potential.

No sector stands out

The reshoring trend is driven more by previous decisions on offshoring; company strategies on new markets; where they see their competitive advantage and which location offer the best potential to realise it. A couple, however, stand out. The Automotive Council last year published some information about the procurement requirements of their members to highlight the supply chain opportunities for UK-based manufacturers.

A potential positive for the UK

The UK needs to make progress on rebalancing our economy and new manufacturing investment is an important part of this process. Reshoring trends could be a positive for manufacturing, supply chains and the economy, but competition for this type of high-value investment is fierce. Policy makers have a role in support this trend by demonstrating a relentless focus on encouraging more companies to bring new products to market; making the UK attractive to manufacturers seeking to expand, keeping the cost of business low and upping the supply of skilled people.


Chief Economist

Other articles from this author >
Online payments are not supported by your browser. Please choose an alternative browser or make payments through the 'Other payment options' on step 3.