Good news is on the horizon for US manufacturing, according to the ninth-annual Reshoring Index released few weeks back by the global management consulting firm Kearney. Kearney finds a bright future for a new style of reshoring that incorporates what used to be thought of as nearshoring.
The Reshoring Index is a unique barometer for tracking the extent to which America is reshoring manufacturing back from low-cost countries (LCCs) and regions in Asia that have benefited for decades from US companies offshoring manufacturing. The Reshoring Index is determined by calculating the Manufacturing Import Ratio (MIR), dividing the import of manufactured goods from the 14 Asian LCCs by the US domestic gross manufacturing output. The Reshoring Index reflects the year-on-year change in the MIR.
Reshoring is not what it used to be. In fact, it is much more, according to Kearney’s annual Reshoring Index, the study found that despite the short-term challenges, large portions of offshored manufacturing may soon be returning back to the United States from the 14 Asian typical LCCs and regions where sourcing, production, and assembly have been offshored. The latest Reshoring Index is based on extensive research conducted in 2021 and released in 2022 by Kerney.
In 2021, US imports of manufacturing goods from the tracked LCCs totalled 14.49 percent of US domestic gross manufacturing output, up from 12.95 percent in 2020. This resulted in a negative 2021 Reshoring Index of -154. Kearney Reshoring Index has calculated a negative Reshoring Index for two years in a row, reversing and cancelling out the 2018–2019 move into positive territory that was triggered by the US–China trade war. Since 2020, the Reshoring Index has gone down an additional 67 basis points.
“Nevertheless, the near to midterm future of reshoring looks more promising than it has in any year since we started tracking the Reshoring Index in 2013,” says Patrick Van den Bossche, partner and lead author of the annual Reshoring Index report.
According to Kearney’s study, there are strong indications that attitudes and strategies are changing. Due of the pandemic, trade wars and tariffs, and ongoing resulting supply chain disruptions, American companies are getting more serious about adopting expanded versions of reshoring.
Kearney’s survey of CEOs and manufacturing executives of American companies found a positive and growing sentiment for reshoring compared with last year, despite the continuing drop in the Reshoring Index.
Capital goods spending is increasing, and more companies are seeking to invest in manufacturing assets in the United States—and in Mexico. It is clear America has entered a phase where the answer to the question of whether companies are bringing manufacturing back from China is becoming much more nuanced.
Redefinition of reshoring
This redefinition of reshoring is emerging as more companies pursue the best cost instead of the lowest cost and weigh cost against other factors such as supply chain resiliency and sustainability. More companies are looking at each other to assess if there will be enough critical mass in this redefined reshoring movement to build a supplier ecosystem, either domestically or in a nearshore location, that can rival what China has built.
Redefined, reshoring is likely to catch on faster in some industries than it does in others. “We are seeing a significantly increased focus from apparel and footwear companies on finding reshoring and nearshoring opportunities as a way to both mitigate supply chain disruptions and increase sustainability,” said Brian Ehrig, partner, apparel sector lead, and consumer practice sustainability lead.
“The challenges we are seeing that need to be resolved are significant,” Ehrig added. “But if the industry can work together on rebuilding its domestic and nearshore raw materials value chain, and with advances in new technology, there is a real opportunity to make this happen.”
About Kearney
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