Reshoring presents UK manufacturers with various benefits and challenges. Are we seeing a reversal of the offshore trend?
The promise of cheap labour convinced many UK manufacturers to offshore elements of their business throughout the mid-nineties. New studies suggest that the trend has reversed in recent years, but why are so many companies returning to our shores?
An opinion poll conducted by EEF the manufacturers' organisation found that one in six UK members had reshored to improve the quality of their products, reduce delivery time and more.
UKTI statistics back up the trend, stating that some 1,500 manufacturing jobs had returned to the UK since 2011.
John Dwyer, PwC Global Head of Deals says, “This phenomenon is driven by changing consumer spending patterns, reducing wages compared to emerging economies, unstable global transport costs and a greater focus on the control of quality and supply chain risks.
“We estimate this trend could create about 100-200,000 extra jobs in Britain over the next 10 years and boost our GDP by around £6-12bn at today's values by the mid-2020s.
While Dwyer does acknowledge the existence of a reshoring trend, he cautions that this is only gaining momentum in some sectors. It is a strategy that demands thorough research and a real understanding of the domestic market.
Many owners believe the move offshore a decade ago may have been a mistake
The benefits of reshoring
Alison Phillips is Business Growth Manager at the Government's Manufacturing Advisory Service (MAS), which helps businesses reshore their operations across Britain. It is just one of many UK bodies designed to assist companies founding or re-establishing a presence in the country.
“Many owners believe the move offshore a decade ago may have been a mistake,” she reveals. They were attracted by cheaper labour, but they didn't account for hidden costs and risks that came with managing an operation in somewhere like China; many are now returning.”
Birmingham-based home ware firm ECP Design Ltd offshored a large part of its production to Southern China after it struggled to form a reliable supply chain across Eastern Europe.
Director John Collett reveals that while the move helped cut costs the business faced new challenges as a result of longer lead times. Product ranges were being planned over 12 months while allowing five months for global re-orders.
This logistical challenge demanded that stock levels were consistently kept high, which carried the risk of under or over stocking depending on sales. These are just a few hurdles business must anticipate before offshoring.
“I found the long lead times and high minimum orders continued to be a problem, so for the higher-end pottery I kept production closer to home in Poland,” Collett explains. “As a result, I have recently developed new products in Poland rather than China.”
Bringing manufacturing processes closer can allow greater flexibility for customers and increase responsiveness when fulfilling orders and dispatching goods domestically. However, reshoring itself presents firms with a new range of challenges.
Reshoring challenges and support
The EEF's report found that over a third of businesses are wary about their operations being interrupted during the reshoring process and regard there to be a lack of skilled labour in the UK.
Another third felt the amount of management time required throughout the process was a real concern, while 44% of respondents said a reduced tax burden would encourage them to consider reshoring.
While challenges exist, the UK remains particularly attractive to companies with manufacturing needs thanks to its thriving technology-based industry, where there is still a demand for skilled engineers.
Those considering reshoring need not tackle the task alone however, as bodies like MAS and government apprenticeship schemes are working to ensure there is a strong, skilled workforce in place.
- Spending patterns, unstable global transport costs, a greater focus on the control of quality and supply chain risks are all helping a drive to reshore
- Reshoring may not be effective in all sectors, so thoroughly research the associated benefits and challenges
- If skills gaps are a concern, government bodies such as the Manufacturing Advisory Service (MAS) are on-hand to offer skill accelerator programmes.
For further information about trading internationally, visit the HSBC Connections Lounge at the International Festival of Business in Liverpool where an HSBC Trade Specialist will be on hand to answer your questions or call +44 (0)800 78 31 300. Lines are open from 9am -5pm, Monday to Friday and calls are recorded for security and training purposes.