Professor Janet Godsell of Warwick Manufacturing Group weighs up whether the reshoring movement would be as beneficial to the UK as believed.
UK Prime Minister David Cameron proudly announced in January 2014 at the World Economic Forum in Davos that the UK is set to become the ‘re-shore nation’. That the UK will build on the “small but discernible trend where some jobs that were once off-shored are coming back from East to West.”
However, the press have seized the opportunity to identify the lack of clarity and purpose that the term ‘re-shoring’ has to the general public. They playfully suggested that it means reconstructing the UK’s recently battered coastline!
In our quest to regenerate UK manufacturing, we must take care to avoid jargon and use simple terms that convey their meaning intuitively to the general public. Re-shoring is a term that has evolved in business circles to convey the reversal in the trend of off-shoring.
Simplistically, off-shoring is a term used to describe the shift from local production (e.g. in the UK) to production in a more global setting (e.g. China and the Far East). Off-shoring was driven by a desire to reduce production costs, predominantly due to lower labour costs. What we are essentially seeing now is a shift back to local production; manufacturing returning to the UK. But why? What’s changed?
Whilst consumers like the idea of local production, few are willing to pay a premium for it in these tough economic times, often because they can’t afford to. For UK consumers to buy British, the products need to be of comparable price to their Far-Eastern counterparts or have tangible features and benefits that justify a higher price tag.
This is beginning to happen. The critical reason is that businesses have started to look at their cost base more holistically. They are no longer fixated with production costs (and labour cost in particular) but are taking a more holistic view of the total cost of sourcing, making and moving a product to its end consumer.
They are looking at the total supply chain cost (read more about total supply chain cost or total landed cost here and here). This price parity has been helped by inflation of labour rates in the Far East and the rising price of oil and other commodities, but the critical difference is that businesses are now looking at costs holistically.
It could be argued that the fixation with production costs led to a somewhat myopic shift to more globalised production without fully considering the implications. As businesses begin to re-adjust, the challenge is to identify the most appropriate supply network to support their business, to determine which elements of their production should be made locally, regionally and indeed globally. It’s not about re-shoring but right-shoring.
The UK does not want to become the re-shore nation. We want to enable our businesses to right-shore. To work with businesses to understand their strategic priorities and core capabilities, and to develop the right supply network (locally, regionally and globally) to ensure both the success of their business and the UK economy.
