With the pound weakening, wage increases in China and the Coalition keen to promote British manufacturing as a way to reduce the UK’s huge trade deficit, reshoring is the term of the moment.
The Associate Parliament Manufacturing Group (APMG), the organisation dedicated to raising the profile of manufacturing in Parliament and part of think tank PolicyConnect, has released a report analysing the reshoring phenomenon and its implications for British manufacturers.
APMG found that in in 2009, one in seven companies with production in a low labour cost economy had returned some of that activity to the UK over the last two years. The latest report offers a positive assessment of how the trend has developed since then.
It finds that the biggest reason for the reshoring of jobs is the rising cost of doing business in China. According to the Boston Consultancy Group pay and benefits for the average Chinese factory worker rose by 10% a year between 2000 and 2005 and by up to 19% a year between 2005 and 2010. The pace of wage increases in China continues to accelerate as 2012 saw a 22% jump.
Increased labour costs are far from the only reason why reshoring is becoming more attractive.
China’s failure to offer adequate IP protection particularly for complex high-tech equipment (e.g. medical hardware) has encouraged companies to invest more in the UK in order to keep production secure.
Since 2000 the price of oil has trebled with a corresponding rise in the price of shipping. Higher shipping costs have reduced margins for foreign factories making it more economically viable to locate factories near the markets they are designed to serve.
The use of cheaper, more flexible automation processes are making production in the UK much more attractive. Automation shifts where costs are in manufacturing process.
They become less linked to cheap labour and more to management where low labour cost countries are already at parity with high labour cost countries taking away cheap labour markets’ cost advantage for manufacturers.
Not only are British manufacturers benefiting from global market circumstances they are also offering superior service to customers. They can provide close monitoring of quality standards, greater security for IP, and the convenience of close communications without language and time-zone barriers.
Having manufacturing close by also allows companies to hold less stock and be more responsive to changes in the market.
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