At the World Manufacturing Forum 2014, which commenced today in Milan, Italy, it was argued that the concept of next-shoring is well and truly taking place. But it is not occurring, as many people surmise, due to increasing labour costs in developing markets.
Instead, as was illustrated at the Forum by Katy George, a Director at McKinsey & Company in the US, next shoring is taking place primarily due to innovation but also because of a desire to be close to demand, driven by a need to be responsive to satisfy an appetite for product variation.
However, in a seeming contradiction to the existence of next shoring (aka near-shoring aka re-shoring aka home shoring), employment figures in the industrial sector have yet to tangibly reflect the resurgence of home-grown manufacturing. According to Ms George, efficiency gains made while production was off-shored have increased faster than demand, meaning fewer people are needed to deliver the required goods.
In a similar contradiction, one might assume that next-shoring would mean a slow down in manufacturing in Asia. However, China’s Purchasing Managers Index, or PMI, hit a six month high today to close the month of June at 51. It was 50.8 in May.
Ms George, however, said that in line with her argument, while Chinese productivity continues to recover and indeed increase, any reduction caused by increased local manufacturing in developed countries is being balanced by an increase in demand in the domestic Chinese and wider Asian markets.
As an example, the dramatic growth in the domestic car market in Asia is generating massive growth in automotive supply chain expansion in Asia.