After massively relocating their production and assembly work overseas, many manufacturers have realized over time that offshoring also comes with its own risks and costs. Here is what you need to consider to reshore manufacturing successfully.

1. About fifteen years ago companies were massively
relocating their production and assembly work
overseas to take advantage of low labour costs,
especially in countries like China and India. However,
these same companies realized over time that
offshoring also came with its own risks and costs.
Today, some prominent manufacturers are bringing
work back home, prompting other companies from
around the world to rethink the benefits of reshoring
and its long-term implications.
Many manufacturing organizations moved their
operations to China based on the assumption that the
country provided tremendous cost advantages. This
was true 10 or 15 years ago, but not anymore.
The reshoring decision
BRINGING PRODUCTION HOME SUCCESSFULLY

2. 1
The Boston Consulting Group August 19, 2014, The BCG global manufacturing cost-competitiveness index, viewed April 22, 2015
2
Sirkin, H, Zinser, H & Rose, J April 25, 2014, The Shifting economics of global manufacturing, viewed April 22, 2015
According to the Boston Consulting Group (BCG)
Global Manufacturing Cost-Competitiveness Index,
the difference in manufacturing costs between China
and the United States has become negligible. As a
matter of fact, for every dollar required to manufac-
ture in the U.S., it costs 96 cents to manufacture in
China. And that is before taking other factors into
consideration such as the cost of transportation1
.
The Index measured changes in direct manufacturing
costs from 2004 to 2014 among the world’s top 25
exporting countries, and indicates that old percep-
tions regarding manufacturing competitiveness no
longer hold.
China may still be the world’s largest exporter, but
wages have risen 4 times faster than productivity over
the past 10 years and higher energy costs for both
electricity and natural gas have diminished its
long-standing edge. Hence, the study found that the
country with the lowest manufacturing costs is no
longer China, but Indonesia, then India, Mexico and
Thailand.
But regardless of where production has been
outsourced, the cost of offshoring is almost always
more than anticipated. Some of the tangible costs that
are often underestimated include transportation,
expediting, custom duties, warehouse space/costs,
salaries for personnel overseas and domestic staff
managing overseas suppliers, material handling,
procurement staff, inventory carrying, debt, product
damage, and potential hidden costs such as
occasional trips to Asia.
Intangible costs are just as real. They include the cost
of managing offshore suppliers, the cost of corruption,
and the possibility of losing intellectual property or
damaging customer relationships with late deliveries
or poor quality.
Truth be told, assessing a country’s relative competi-
tiveness is a complex task, because it is determined by
a number of fluctuating factors. The past ten years
have been marked by high volatility. Some countries
have seen more than 10 years of 10 to 20% sustained
wage growth. Productivity has doubled in many
countries while declining in others. Energy costs have
increased in many countries, sometimes by up to
200%, and currencies have fluctuated greatly,
ranging from -20 to +35% versus the U.S. dollar2
.
Under these conditions, trying to
identify the best country to offshore
production for the next 10 to 25 years
is at best a guesstimate.
THE CHALLENGES OF OFFSHORING

3. From a locational perspective, manufacturers typically have three options: onshoring
(within the nation), nearshoring (in a neighbouring country) and offshoring (in a
geographically distant country). 3
Companies that have brought outsourced personnel and services back to the
location from which they were originally offshored—what is effectively called reshor-
ing—include large corporations like General Electric, Motorola, Lenovo, Google,
Apple, Boeing, and Ford. However, several studies have confirmed that the reshor-
ing trend is growing.
In 2014 the BCG published its third annual survey of U.S.-based manufacturing
executives, which showed that more than half of the respondents were considering
bringing production back, thus corroborating the findings from the previous year. In
addition, the 2014 study confirmed that these executives were acting on their
intentions: the number of respondents who said that their companies were already
bringing production back from China to the United States had risen 20% from rough-
ly 13 to 16% the previous year.4
Similarly, a 2013 study by Grant Thornton predicted that over the course of one
year, about one-third of U.S. businesses would be moving goods and services back
to the United States, and a similar percentage would be reshoring to places closer
to home such as Mexico. According to the study, the trend would even hold true for
sectors such as IT services and call centres, which have traditionally been largely
outsourced abroad.5
In Canada, the reshoring trend may not have gained as much momentum yet.
Nevertheless, companies are increasingly realizing the benefits of local manufactur-
ing, especially with the volatility of the Canadian dollar. A 2014 KPMG report
indicates that just 14% of Canadian manufacturers plan to source from China,
compared to 31% the year before.6
Whether the reshoring trend accelerates or not depends on a
number of factors, including the overall state of the economy,
but one thing is certain: corporations are no longer just look-
ing at labour costs when they elaborate production strategies.
THE RESHORING TREND
3
Zhang, M 2012 Sher-Wood Hockey sticks: global sourcing, Ivey Publishing
4
The Boston Consulting Group October, 2014, Made in America, avgain, viewed April 22, 2015
5
Grant Thornton, November 19, 2013, Reshoring likely to radically reshape U.S. economy in next year, viewed April 22, 2015
6
Giguère, L & Matthew, D 2014, Canadian manufacturing outlook 2014, viewed April 27, 2015

4. Why manufacturers
are reshoring
production?
?

5. TOP MOTIVATORS
FOR RESHORING
Although in the past the primary driver for offshoring was
labour arbitrage, several studies show that today companies
are not interested in lower manufacturing costs alone.
According to a study by the global management consulting
firm A.T Kearney, the main reasons manufacturers are bring-
ing production home are delivery time improvement, total
cost of ownership, quality improvement, freight cost improve-
ment, wage cost improvement, customer responsiveness, and
to a lesser extent image, higher productivity, innovation, and
inventory improvement.7
Similarly, respondents to the BCG survey indicated that the
top three motivators for reshoring are the needs to8
:
•Shorten the supply chain
•Reduce shipping costs
•Provide local control over manufacturing processes, in that order.
7
Van den Bossche, P, Gupta, P, Gutierrez, H, & Gupta, A February 2014, Solving the reshoring dilemma, viewed April 28, 2015
8
The Boston Consulting Group October, 2014, Made in America, gain, viewed April 22, 2015

6. 9
Slavin, C March 24, 2015, Walmart’s made in USA initiative bodes well for U.S. packaging sourcing, viewed April 30, 2015
SUPPLY CHAIN MANAGEMENT
TOP MOTIVATORS FOR RESHORING
Closer geographical proximity with both customers and
suppliers helps reduce shipping costs and delivery times. As a
result, manufacturers don’t need to keep large quantities of
finished products in stock, which in turn lowers inventory
costs. And since local suppliers typically offer longer
payment terms than their Chinese counterparts, companies
have the added benefit of improved cash flow.
Improved customer responsiveness is another reason
manufacturers want to bring production home, or at the very
least closer to home. In certain sectors, the ability to turn
around a product in days instead of months confers an
undisputable competitive advantage. This is particularly
important in sectors such as fashion apparel or for technology
products where demand varies unexpectedly and production
adjustments need to be made quickly.
Similarly, reshoring minimizes the risk of supply chain disrup-
tion. Manufacturers can oversee manufacturing processes
locally and should the unforeseen happen, they can react
much faster than if production was overseas.
From a quality standpoint, the label “Made in America” has
always been synonymous with higher quality for sensitive
products like food, baby items, or medicines, but the
phenomenon is gaining momentum. Companies are becom-
ing increasingly aware that this is what customers want. After
conducting its own research and realizing that the country of
origin was the second biggest indicator of purchasing prefer-
ence—right after price—Walmart famously committed in
2013 to buy an extra 250 billion of “made in USA” products
over the next ten years.9
The widely advertised announce-
ment certainly benefited the company in terms of brand
image, but there was also a strong desire to support the local
economy.
More and more businesses see the benefits of maintaining
closeness between their R&D department and the manufac-
turing/assembly line. This approach reinforces collaboration
and minimizes the risk of miscommunication due to language
barriers. Besides, it makes it much easier to run tests or work
on prototypes in iterations. All in all, this translates into even
shorter lead times, and can even stimulate creativity and
innovation. This has proven to be quite beneficial for complex
products.
Some businesses are nonetheless deliberately deciding to
either stay local or reshore, even when the benefits are less
tangible. Sometimes it is a branding decision, and sometimes
it is a long-term commitment to the green movement, since
manufacturing eco-friendly products overseas has proven to
be more challenging.

7. What to consider to
reshore manufacturing
successfully?
?

8. 10
Van den Bossche, P, Gupta, P, Gutierrez, H, & Gupta, A February 2014, Solving the reshoring dilemma, viewed April 28, 2015
11
The Boston Consulting Group October 23, 2014, U.S. executives remain bullish on American manufacturing, study finds, viewed May 4, 2015
12
Campeau, M December 2, 2014, What will the end of cheap Chinese labour mean for Canadians? viewed May 4, 2015
STRATEGIC PERSPECTIVE
BRINGING PRODUCTION HOME SUCCESSFULLY
Clearly, reshoring is a better decision for industries
that are largely influenced by macroeconomic
factors such as labour productivity, currency fluctu-
ation, and energy costs. So, companies that are
either in computers and electronics, appliances
and electrical equipment, primary metals, machin-
ery, furniture, plastics and rubber, paper, or
fabricated metals should at least give some
thought to the reshoring question.10
Furthermore, organizations located in countries
with higher productivity levels are more likely to
reshore. In this respect, the large productivity gap
between Canada and the U.S. is one of the
reasons American companies tend to jump sooner
on the reshoring bandwagon than their Canadian
counterparts. Manufacturers in the U.S. are
typically larger firms and can therefore exploit
bigger economies of scale, especially when they
have invested in advanced manufacturing technol-
ogies such as 3-D printing, robotics, and digital
manufacturing. 11
To complicate matters further, the reshoring
decision needs to be future-proof. As indicated
before, one of the key premises behind reshoring is
that the benefits of being closer to the customer
offset higher labour costs. But that line of reasoning
assumes that the goods produced locally are be
sold locally.
Meanwhile, emerging markets are growing much
faster than domestic markets. General Motors, for
example, now sells more cars in China than in any
other market.12
So, organizations need to look at
their markets globally, otherwise they will simply
have the reverse problem in 10 or 20 years.

9. 13
Shih C. Willy. August 7, 2014, What it takes to reshore manufacturing successfully, MITSloan Management Review, viewed April 22, 2015
SUPPLIER ECOSYSTEM
BRINGING PRODUCTION HOME SUCCESSFULLY
Whether companies decide to reshore all or part of
their product-assembly operations, they should
learn from those who have brought work back from
abroad.
In this regard, the U.S. Competitiveness Project at
Harvard Business School offers precious insight. It
shows that reshoring impacts all the levels of the
supply chain and that manufacturers need to
prepare for challenges that range from rebuilding
the supplier ecosystem to hiring and retaining
skilled workers, as well as relearning how to manu-
facture locally.13
These aspects may influence the choice of the
reshoring location as well. Should companies
reshore to an existing factory or to a new one?
The advantage of using an existing location—as
long as it has the necessary capacity—is that
manufacturers face fewer logistical challenges
such as warehouse space and transportation.
Moreover, they can tap into their supplier network,
although they need to ensure their suppliers can
ramp up as well.
However, when companies need to find a new
location with suitable capacity, the location of their
suppliers is a crucial factor to consider. With the
offshoring movement, many suppliers have
followed their customers overseas. As a result, the
supplier ecosystem has completely evaporated in
certain industries.

10. LABOUR
BRINGING PRODUCTION HOME SUCCESSFULLY
Likewise, the shortage of skilled labour has
proven to be a tremendous challenge. Finding
enough people with the right skills over a relative-
ly short period of time and keeping them motivat-
ed to stay requires a lot of preparation. General
Electric had a goal of hiring 2 500 new workers
for its reshoring project in Kentucky. However, the
company had to hire no less than 6 500 workers
to yield the required 2 500 employees. When the
employee turnover is that high it creates unpre-
dictability in production schedules, which inevita-
bly affects productivity, not to mention the reper-
cussions on recruiting and training costs.
Unfortunately, the lack of skilled workers will only
escalate over time as more people reach the
retirement age.
There is no easy solution. Some corporations are
trying to fill the gap with in-house training, others
are recruiting abroad or from local related indus-
tries. Many manufacturers are also working
collaboratively with community colleges and
universities, but it will take years before significant
results can be achieved.
Admittedly, automation can fill the labour gap,
but only to some extent. This solution tends to work
well for companies that don’t need a lot of manu-
facturing flexibility. However, humans are still
more flexible than machines when manufacturers
need to produce small quantities of mixed
products or adapt to frequent market changes.
So, it is often more a question of finding the right
mix of manual and automated processes. Besides,
it only shifts the recruiting problem, because these
manufacturers still need to hire qualified workers
to run their expensive machinery.

11. BRINGING PRODUCTION HOME SUCCESSFULLY
14
Vechiola R May 14, 2014, United States: reshoring is gaining momentum, viewed April 27, 2015
LEAN PRACTICES
Another key lesson from the recent reshoring of
manufacturing to the U.S. is that companies
cannot expect to manufacture products locally
the same way they manufactured them overseas.
In low-cost countries, the focus was on leverag-
ing cheap labour, but with reshoring the focus is
more on adopting lean manufacturing principles.
This often means that manufacturers need to
change their mindset around working with
suppliers. For years, they have focused almost
exclusively on achieving cost efficiencies through
low-cost, competitive sourcing. But now they
need to work more strategically with their key
suppliers to optimize the supply chain. A
relationship that entails a much higher level of
information sharing and collaboration can go a
long way to solve design and production
problems.
There is no doubt that big projects like reshoring
require a lot of advanced planning and active
project management skills. Organizations need
to handle myriad of details such as timing
existing contracts, maintaining inventory levels
throughout the transition, transporting various
resources, and enforcing intellectual property
rights overseas.14

12. The companies that are the best positioned to compete in
the future are those that are getting closer to customers,
both in emerging markets and in developing countries.
And to that end, reshoring is very much a lesson in manu-
facturing globalization.
When companies initially decided to offshore work from North America or
Europe to low-cost developing countries, they made their decision primarily
based on low-cost wages. Two decades later they realized that manufacturing
costs were only part of the equation.
So far, the reshoring trend has been quite strong in the United States. And
although it is likely to continue and even spread to other countries, it will not be
across the board. Just like offshoring was not for everybody, reshoring will vary
by industry and depend on the degree of reshoring readiness of each company.
Meanwhile, organizations are acutely aware that they don’t control their macro-
economic and industry environments, which is why they increasingly opt for a
diversification strategy that requires them to maintain manufacturing operations
around the world.
As companies work through the challenges of reshoring, they learn that a collab-
orative approach with suppliers can lead more lasting competitive advantages
than a short-term focus on sourcing the lowest price.
JUST LIKE
OFFSHORING WAS
NOT FOR EVERYBODY,
RESHORING WILL
NOT BE ACROSS THE
BOARD.

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