Supply chain executives of Fortune 500 companies are witnessing a significant shift in global manufacturing: production is increasingly returning to North America, driven by a combination of economic, geopolitical, technological and environmental factors. In 2023, Mexico overtook China to become the largest trading partner of the United States (Figure 1), accounting for 15.7% of total trade; China and Canada accounted for 15.3% and 11.0%, respectively.1 This reshoring wave is reshaping the industrial landscape and presenting both challenges and opportunities for supply chain leaders. This article provides a comprehensive overview of the effects and implications of reshoring.
The Reshoring Revolution: Drivers and Scale
The momentum behind this manufacturing migration is substantial and driven by several factors, including:
- Economic considerations: Rising labor costs in China are eroding its cost advantage, prompting companies to reevaluate their total cost of ownership (“TCO”), considering factors beyond just labor costs.2
- Geopolitical tensions: Trade conflicts and national security concerns have highlighted the risks of overreliance on overseas production. The COVID-19 pandemic further exposed vulnerabilities in extended global supply chains, accelerating the reshoring trend.3
- Technological advancements: Automation, robotics and Industry 4.0 technologies are making domestic manufacturing more competitive, offsetting higher labor costs in North America.
- Sustainability imperatives: Shorter supply chains result in lower emissions, aligning with corporate social responsibility initiatives and stricter environmental regulations.
Industries That Are Leading the Charge4
While the reshoring trend spans various sectors, certain industries are at the forefront:
- Electrical equipment, appliances and components: Companies like GE Appliances have reshored production to the U.S., creating thousands of jobs and transforming facilities into centers for excellence.
- Transportation equipment: The automotive industry, particularly electric vehicle (“EV”) production, has seen substantial reshoring activity. Ford, for example, has invested heavily in U.S. manufacturing facilities.
- Chemicals and pharmaceuticals: The need for supply chain resilience and proximity to research and development (“R&D”) centers has driven reshoring in these sectors.
- Computer and electronic products: The semiconductor industry, in particular, has seen significant reshoring activity, spurred by national security concerns and government initiatives such as the CHIPS Act.
Benefits and Challenges of Reshoring
Reshoring manufacturing to North America offers significant advantages for companies. On the positive side, it enhances supply chain resilience by reducing transportation costs and lead times due to proximity to end markets. Product quality often improves with closer oversight of manufacturing processes. Reshoring also creates high-paying jobs, boosts local economies and accelerates innovation by bringing production closer to R&D centers. However, companies face several challenges when reshoring. Labor costs in North America are substantially higher than in many overseas locations, and there’s a shortage of skilled manufacturing workers, making it difficult to staff new facilities. U.S. regulations tend to be more stringent and complex, increasing costs and logistical challenges. Infrastructure limitations are also a concern, as the U.S. needs more manufacturing space and significant improvements to support reshored operations. Finally, rebuilding domestic manufacturing infrastructure requires substantial capital investment, which can be a significant barrier for many companies. Balancing these pros and cons is crucial for businesses that are considering reshoring their operations.
Impact on Supply Chains and Logistics
The reshoring trend is fundamentally altering supply chain dynamics. Proximity to end markets is reducing transportation costs and lead times, enhancing supply chain resilience. This shift is prompting a reconfiguration of logistics networks, with increased focus on regional and local distribution centers.
The emphasis on supply chain resilience has become paramount, with many CEOs considering reshoring to mitigate geopolitical risks. This focus on risk mitigation is driving investments in supply chain visibility tools, advanced analytics, and scenario-planning capabilities.
Economic Implications for North America and Asia
For North America, the reshoring trend presents significant economic opportunities. Annualized manufacturing construction spending in the U.S. reached $237 billion in July 2024, from $128 billion two years prior, an increase of 86%.5 Analysts have recognized the correlation in the growth in manufacturing construction and the CHIPS Act, a government policy to reshore semiconductor industry.6
The creation of high-paying manufacturing jobs is boosting local economies and stimulating innovation. According to the Reshoring Initiative, the cumulative number of jobs brought back since 2010 is nearing two million, about 40% of what we lost to offshoring, with a record 343,304 jobs announced in 2022 and 287,299 announced in 2023.7
Conversely, Asia, particularly China, is seeing its dominance in global manufacturing decline. U.S. imports from China decreased by 20% ($109 billion) from 2022 to 2023, as companies shifted production closer to home.8 However, it is important to note that this transition is gradual, and Asia remains a crucial player in global supply chains.
The Role of Government Policies
Government initiatives have played a crucial role in accelerating the reshoring trend. The CHIPS and Science Act of 2022 allocated $52.7 billion to boost domestic semiconductor manufacturing and research over a 5-year period from 2022 to 2027.9 The Inflation Reduction Act of 2022 provided about $370 billion in incentives for clean energy and climate initiatives, including domestic manufacturing, over a 10-year period from 2022 to 2031.10 Additionally, the Infrastructure Investment and Jobs Act has prioritized rebuilding infrastructure and advancing clean energy initiatives.11 These policies, along with tax incentives and subsidies, are reshaping the manufacturing landscape and influencing corporate decision-making.
Technology as an Enabler
Advancements in technology are making reshoring more feasible and attractive. Automation and robotics are offsetting higher labor costs in North America. Digital transformation and Industry 4.0 technologies are enabling more efficient and competitive domestic manufacturing. Additive manufacturing and 3D printing are reducing the need for complex global supply chains, and facilitating localized production.12
Long-term Projections
The reshoring trend shows no signs of slowing down. Projections suggest continued growth in reshoring activities, with particular emphasis on critical industries like semiconductors, pharmaceuticals and electric vehicles. Mexico attracted $32.9 billion in foreign direct investment in the first three quarters of 2023, a 30% increase from the same period in 2022, largely attributed to nearshoring.13
However, this shift doesn’t mean forsaking global supply chains. Instead, we are likely to see a more balanced approach, with companies adopting a “China plus one” or regional manufacturing strategy to diversify risks.
The Role of Supply Chain Executives
As a supply chain executive, navigating this shifting landscape requires a strategic approach:
- Conduct comprehensive total cost of ownership model analyses: Look beyond just labor costs to consider all aspects of manufacturing and sourcing decisions.
- Prioritize supply chain resilience: Develop strategies to enhance flexibility and mitigate risks in your supply chain.
- Leverage technology: Invest in advanced manufacturing technologies and digital tools to boost competitiveness. According to research conducted by Thomas in 2021, 83% of manufacturers believed that smart factory solutions would transform production methods within five years, supporting the trend of technological advancement in reshored manufacturing.14
- Stay informed on policy developments: Keep abreast of government initiatives and incentives that could impact your industry.
- Focus on workforce development: Address potential skills gaps through training programs and partnerships with educational institutions.
- Consider sustainability: Factor in environmental impacts and regulations when making reshoring decisions.
- Embrace innovation: Leverage proximity to R&D centers to accelerate product development and innovation.
Case Study: Cost Reduction and Product Optimization for an Energy Storage Company
A pioneer among power storage companies faced profitability challenges around its existing and new products. The company was looking to manage assembly costs and address lead-time risks for the electronic components needed to manufacture its products.
Our Impact:
- We identified 8%-12% savings in the cost of goods sold (“COGS”) for the 55 material parts and made suggestions regarding implementation strategies for each category.
- Our experts located an electronic component supplier with a much faster lead-time performance of 16 weeks vs. more than 40 weeks.
- FTI Consulting supported the client in achieving the target cost of stacks sold (“COSS”) and enhancing its capability to fulfill customer purchase orders profitably.
Our Role:
- FTI Consulting conducted a detailed bill of materials (“BOM”) cost analysis and prioritized 55 material parts for price benchmarking.
- Our team approached more than 40 suppliers within the industry and designed a comprehensive quotation package.
- We shortlisted qualified suppliers, performed various savings scenarios to understand the savings opportunities, and suggested strategies for realized savings.
This case study highlights our strategic approach to cost reduction and supply chain optimization, demonstrating our ability to deliver substantial savings and operational improvements for clients.
The reshoring wave presents both opportunities and hurdles for supply chain leaders. By carefully evaluating TCO, leveraging advanced technologies, and considering the strategic advantages of proximity to markets and innovation centers, your company can thrive in this North American manufacturing renaissance.
As we look ahead, the global manufacturing landscape will continue to evolve in this direction. The key to success lies in adaptability, strategic foresight and a willingness to embrace change. The great manufacturing homecoming is not just a trend — it represents a significant shift in industrial practices. Are you ready to lead your company through this transition?
Footnotes:
1: “Top Trading Partners – July 2023,” United States Census Bureau (July 2023).
2: Thomas Fitzgerald, “What’s Driving Manufacturing Reshoring? And Is It in America’s Best Interests?,” KETIV (July 5, 2022).
3: Eric McLaughlin and Dana M. Peterson, “A Reshoring Renaissance Is Underway,” MIT Sloan Management Review (November 2, 2023).
4: “Reshoring Initiative 2023 Annual Report,” Reshoring Initiative (2023).
5: “Monthly Construction Spending, July 2023,” United States Census Bureau (September 1, 2023).
6: “Unpacking the Boom in U.S. Construction of Manufacturing Facilities,” U.S. Department of the Treasury (June 27, 2023).
7: “Reshoring Initiative 2023 Annual Report,” Reshoring Initiative (2023).
8: “Trade in Goods with China,” United States Census.
9: “Fact Sheet: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China,” The White House (August 9, 2022).
10: “Inflation Reduction Act of 2022,” IEA (December 12, 2023).
11: “Fact Sheet: The Bipartisan Infrastructure Deal,” The White House (November 6, 2021).
12: ” Javier Bilbao-Ubillos, Vicente Camino-Beldarrain, Gurutze Intxaurburu-Clemente, Eva Velasco-Balmaseda, “Industry 4.0 and potential for reshoring: A typology of technology profiles of manufacturing firms,” Computers in Industry Volume 148 (June 2023).
13: Eduardo Saucedo, “How Much Nearshoring Has Arrived to Mexico in 2023?,” EGADE Ideas (November 29, 2023).
14: Cathy Ma, “83% of North American Manufacturers Are Likely to Reshore Their Supply Chain in 2021,” ThomasNet (June 30, 2021).
