Why the UK should seize the opportunity that reshoring offers businesses

Why the UK should seize the business opportunity offered by reshoring

Reshoring has become one of the most exciting new trends within the manufacturing industry over the last few years. A buzzword that has led to David Cameron, the Prime Minister referring to it as a “reshoring revolution” at the recent World Economic Forum in Davos earlier in the year. He continued that Britain (and Europe) needed to seize on the opportunities that reshoring is offering – build employment from it and develop into a leading reshoring nation.

MAS, the Manufacturing Advisory Service, comments that in the past year the UK has continued to strengthen its position as the leading European destination for foreign direct investment (FDI), capitalising on global market opportunities to retain and create new jobs, and fostering FDI to spur economic development. Companies are increasingly looking to reshore manufacturing, textiles, software production and call centre work to the UK instead of outsourcing overseas, and reshoring is now a key component in strengthening local economies and the UK industrial base as a whole.

A way for the West to capitalise on globalisation

It has long been argued by some that the West would always struggle in the globalisation of the manufacturing and production sectors – the East and the machines would always win over the West. However, with this latest trend it would seem that for some firms the opportunity to reshore, or bring back part of their production or supply chain back to the UK shores, has proved to be viable from a financial perspective.

However, the reasons for reshoring are more complicated than being purely financially based. There is growing interest from firms to keep tighter control of the quality of their products – a factor that can be far more easily maintained from a closer production base within the UK. Also, reshoring has enabled businesses to resolve issues surrounding delivery times and logistical costs. For some firms it has meant that they are able to decrease production runs to trial smaller batches of alternative products – leading to an ability to tailor products to the market place, increasing profitability and sales and helping with cash flow.

Backing Britain survey

A recent survey conducted by EEF and Squires Sanders entitled “Backing Britain – a manufacturing base for the future” offers some interesting facts about the process of reshoring in the UK. One in six businesses have reshored either their sourcing to a British based supplier, or, have brought their production in-house over the last three years. The main countries that have lost out from this move have been those in Eastern Europe and China. It is thought that the gradual erosion of the previously more competitive labour costs and concerns over supply chain are two of the main reasons for some firms bringing the business back to Britain. A need to control the quality of their products is also key, as more and more British firms cite the quality of their product as their primary competitive advantage. Around 60% of those that have reshored have seen an increase, although small, in their profitability.

The need for reform and development if reshoring is to continue

In order for reshoring to continue to grow as a trend in the UK there is a need to address both energy costs and skills levels in the future. The survey cites the need for energy costs to remain similar to, or lower than, the EU average as a fundamental need if the reshoring trend is to continue to grow. In the US, which has seen much success from its reshoring programme, the growth in the production of shale gas has produced a source of reliable cheap energy for US manufacturers to tap into, a move that has interested David Cameron to answer these energy cost concerns in the UK. Alongside this, nearly half of the respondents cited skills shortage as a major potential issue for the future of the reshoring movement and that  there is a continued need to further develop apprenticeship schemes and skills training across the county to ensure that there are people coming through the pipeline as the industry grows.  The other main areas that firms expressed concern with were the tax levels.

As trends go, reshoring appears to be the positive, good news that the sector has been waiting for. And whilst initially it’s had a relatively slow uptake, if the current issues are addressed then there could be significant gains to be made for the manufacturing industry in the years to come. Find out more about reshoring by visiting the Manufacturing & Engineering Expo this October.