Reshoring might sound like a buzzword for some of you out there but it’s a lot more. It’s something we really believe in here. Plenty of businesses are reshoring their production, whether it’s for economic reasons or to follow their values. See, reshoring doesn’t just make economic sense it also makes companies more eco-friendly.
It’s not easy for companies to reshore though, there’s a lot of work and potential expense involved. But beyond being the right thing to do it gives you, as a business, some real advantages. Things like more reliable supply lines and easier support.
In the ever changing world of industry it’s important to evolve with the times. It’s not enough to just label something as green with the bare minimum to meet requirements anymore. Customers want real sustainable products. Reshoring offers companies a way to get there. The truth is recycling aluminium doesn’t make your bike green. Not if it was produced with coal power shipped around the world.
More Than a Buzzword
Whatever their reasons, more companies are choosing to reshore all the time. A larger proportion of startups may choose never to offshore in the first place. It’s an idea that’s picking up a lot of traction. In turn this is making reshoring easier as more companies are opening onshore to accommodate this.
There’s some speculation here but, a snowball effect could occur. As reshoring becomes easier to facilitate, more companies can reshore easily. As the onshore industry grows the offshore shrinks. If it continues onshore manufacture could become the industry standard.
All of this is to say that reshoring production is not just a buzzword. Rather it is a very real change in the industry, one that could change the whole landscape.
The Problem With Offshore Production
Offshore production is becoming increasingly less cost effective. With long lead times and higher costs it stops making sense to offshore production. To be honest that’s where we’re at.
The bulk of the world’s bikes are being produced in the Asian market. So much so that it’s difficult for manufacturers to keep up with the demand. The resulting bottleneck has led to long lead times. I’m sure a lot of people reading this will have experienced that to some degree. That can be a big loss for any business as you try to survive without stock to sell. For smaller businesses though, well it can be the end.
The long lead times don’t only come from the bottleneck though. Actual shipping times need to be factored in. Even worse, stock getting stuck in customs. When everything is factored in you can easily go months without getting the stock that you need to keep your cash flow stable.
Higher costs are also a big factor in why offshoring is no longer worth it. One of the biggest reasons for offshoring production was financial. Things like cheaper labour and taxes. But with anti-dumping charges, high import tariffs, and more recently the beginning of CBAM it just isn’t cheaper anymore. Or at least not in any significant way.
Let’s be honest offshore manufacturing was never about “tapping into global talent”, it was a method of cutting costs and increasing output. The real cost of that has been environmental. As an industry we are responsible for our products. Those products have been made with coal power and shipped around the world at a massive carbon cost. The real problem with offshore industry isn’t really cost effectiveness. It’s sustainability.
How Can Reshoring Help?
Reshoring offers some serious advantages over offshoring these days. Lower lead times, cost effectiveness being the big ones for companies. Things get more interesting when we look past that though. By reshoring production companies can help to create growth in their local economies while simultaneously reducing their carbon footprint.
As we’ve seen, offshoring bike production to Taiwan results in a bottleneck of production. The majority of the market is relying on one place to produce their bikes. With reshored industry bikes are produced closer to home. That means a more spread out industry producing a smaller number of bikes. Alleviating the strain on production and avoiding a bottleneck. Lower shipping times and a lack of customs speeds up the process even more. So you can have reliable access to stock when you need it.
It’s important to acknowledge the elephant in the room. Onshore production is traditionally more costly. That means it can cause higher retail costs and/or lower profit margins. The bulk of the extra expense comes from labour costs. Wages in the UK and EU are higher than Taiwan, there’s no getting around it. But this is offset by the lack of import tariffs and anti-dumping charges. It’s worth mentioning once more that CBAM will likely raise costs even more. Putting all of this together, along with a more streamlined supply chain, means that even if the cost of manufacture per bike is higher, the total cost is not and turning a profit can be made more reliably.
The Bigger Picture
We’ve talked about how reshoring can benefit a company, but it can benefit a lot more than that. Zooming out, reshoring allows us to make a real positive difference within our countries and the world at large.
We alluded earlier to the cost of offshore production. Most of the power used in Asian manufacturing comes from burning fossil fuels like coal. Over 74% of Taiwan’s energy came from coal or oil in 2020. By not reshoring industry we make up a percentage of that number. Compare that to Scotland which in 2020 produced 97% of its gross energy consumption in renewable energy and it’s fairly easy to guess which is greener. But that’s only in production. It’s even better when we look at transport. International shipping comes with a big carbon price tag. Especially when considering the much lower carbon cost of shipping by train- or truck when trains aren’t viable.
It isn’t only environmentally that reshoring helps though. By reshoring production a company improves the economy. The creation of not only jobs, but an industry comes with reshoring. UK bike manufacture used to be a thriving industry before offshoring. By bringing production back to the UK as much as possible our industry can inject millions of pounds into the economy. This isn’t just true of the UK either, all economies can benefit from bringing their industry back home. Reshoring helps build stable manufacturing jobs and more exports to countries that can’t develop the industry.
Reshore Or Nearshore
Reshoring can’t happen overnight. It’s a huge change. In fact sometimes reshoring might not be the best thing for everyone whether because of a lack of materials or demand. But when that’s the case it’s worth looking into nearshoring.
Nearshoring differs from offshoring because the country you’re producing in is much closer. Right from the start this means shorter shipping times and lower emissions from shipping. If we look into it we can make some assumptions too. Chances are your near-shored manufacturer has better access to green energy than the average manufacturing facility in China. After all, China is the biggest producer of CO2 globally.
Your closer proximity also allows problems to be solved much more easily. Say for example if you were sent damaged merchandise. Having that merchandise replaced will be significantly quicker with near-shored manufacture. Even better than this, near-shored manufacture still spreads the production over a wider area helping to stop production bottlenecks. This increased support and efficiency leads to more reliable cash flow.
While not as effective as reshoring, nearshoring is a great step towards improving the industry. In fact near-shored production may be a necessary step for many companies that plan to reshore. Giving them access to a more efficient and greener system before they are able to set up their own production facilities.
This Is The Time
We can’t force anyone to reshore. But the fact is that the cost of offshoring is higher now than ever, and it’s going to get higher with measures like CBAM. This is the time to reshore your assembly and your production. If you’re not able to reshore for whatever reason then nearshore. You’ll get a lot of the same advantages and it still helps in the bigger picture.
Reshoring is not just a business trend that’s going to die away, it’s what the future of industry looks like. It has to be. Not just because it makes more sense strategically but because it’s the right thing to do. For the environment, for our economies and for our workers. So get in touch with us today about reshoring your manufacturing. Do the right thing for everyone and help change the industry.