Reshoring May Become Much More Than A Strategic Move…
Maddy Miller on
Thursday, April 26, 2012
…it could mean survival. President Obama’s State of the Union address in January proposed enticements for businesses that relocate manufacturing back to the U.S. His proposal to Congress included federal tax incentives as well as imposed tax penalties on those businesses that refuse to reshore.
Reshoring isn’t a new concept to procurement professionals. Many businesses have evaluated their sourcing activities in foreign markets and are making moves to nearshore or reshore their suppliers. According to a
recent report digested by Spend Matters, the current top three concerns of global trade professionals include slump in global demand, volatility in commodity prices, and rising wages in manufacturing hot spots. The majority of surveyed individuals attested that sourcing from locations outside of China would be more important in 2012 than 2011.
Businesses who have decided to exit the Asian market and nearshore or reshore suppliers have done so strategically to improve their own supply chain efficiencies. Their supply chains have been affected by natural disasters and the continuing rise in prices due to wage increases, as well as the sharp rise in fuel prices and transportation costs. At a recent forum, President Obama offered statistics from a study that showed that the total cost of ownership when manufacturing in the U.S. is only 12% higher than manufacturing in China. It was lower by 20% in some cases.
Despite the numbers, many businesses haven’t invested the time and effort required to evaluate nearshoring and
reshoring solutions. While reshoring hasn’t become a trend yet, come the passing of future legislation, it may become a necessary step.
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