In recent months, manufacturing companies have increasingly considered reshoring/near-shoring their operations to North America.
A few of the factors driving this strategic direction:
1. Tariff Uncertainty
The potential threat of tariffs is a significant driver for reshoring. Tariffs can increase the cost of imported goods, making it more economical to produce domestically. By reshoring, companies can mitigate the impact of import tariffs but will still have to navigate the cascading impacts of fluctuating international trade policies.
2. Total Cost of Ownership
Companies can make more informed decisions about reshoring when they consider the full financial impact. Evaluating the total cost of ownership involves considering not just the direct costs of production but also the hidden costs associated with offshoring, such as quality control issues, longer lead times, and intellectual property risks.
3. Automation and Advanced Technologies
How much capital investment have you made in your U.S. based production facilities? Automation and advanced manufacturing technologies can be integrated into your production processes to enhance efficiency and reduce the risk of a labor shortage.
4. Strategic Partnerships
Do you have already have strategic partnerships with U.S. based contract manufacturers that you can leverage? These partnerships can enable companies to tap into existing expertise and infrastructure while reducing the risks and costs associated with setting up new, or expanding existing, operations.
5. Geopolitical Stability
Strategic and long-range planning requires stability and obviously prefers predictability. North America, particularly the U.S., offers a relatively stable political and economic environment, minimizing the risk of disruption and sudden regulatory change. Additionally, companies are increasingly wary of relying on countries that pose security risks so as to protect intellectual property and sensitive technologies.
Manufacturing and Economic Benefits
Reshoring operations to North America is a multifaceted strategy that offers numerous benefits, from cost savings and improved efficiency to enhanced resilience and reduced risk. I’m admittedly biased in support of manufacturing in the U.S., as my Dad was a UAW member who retired from John Deere’s Dubuque Works facility. I believe our economy is at its best when manufacturing is more than 10% of GDP and 10% of the workforce, as it was in 2023.
Reshoring is not an easy decision, and it carries plenty of risk in executing it successfully. But as manufacturing companies continue to navigate the complexities of global trade, reshoring will likely remain a critical consideration for executive leaders in 2025.
January 2, 2025
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