Today, Business Birmingham published the results of a survey they conducted, showing that British manufacturers expect to hire more staff to cope with an expected surge in demand caused by reshoring of production to the UK. Reasons for the UK becoming comparable more attractive include: escalating costs abroad; high quality production; simpler transport and logistics; access to a skilled workforce; access to a good supply chain; and quality R&D and innovation.
Our own survey evidence on the matter uncovered similar findings when looking into why companies had returned production to the UK. 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 here 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. Reasons for doing so included cost, quality and certainty.
Companies need to be competitive on price but securing orders based on quality, service, providing complete solutions and delivering orders when their customers need them, is increasingly the selling point for UK manufacturers.
Labour cost is not the only thing to factor in with overseas production, more importantly is the total landed cost – companies will need to manage production or suppliers spread over thousands of miles, consider the cost and time of logistics, and if the quality focus of overseas operations matches their own; all things that may erode a firm's competitive advantage if not done right. And a lower labour cost cannot be relied on, wage inflation in some emerging markets is rising at a staggering pace.
Estimate of benefits
An RSA/Lloyds Banking Group report, published back in April and looking at mid-sized manufacturers, stated that this kind of localisation of production could reduce the UK's trade deficit by a third and with the right vision and intervention, there could be some increase in manufacturing employment in the region of 100,000 to 200,000 in the next ten years.
What about customers?
But we cannot forget that access to customers will remain a significant factor in location and investment decisions; we found that between 2009 and 2012 the proportion of manufacturing companies with some production outside the UK increased from 32% to 42%.
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.