In a globalized world, companies not only have the opportunity to trade with other countries, but also to produce in a country other than their country of origin. Although this practice turned out to be attractive and profitable for many businesses, today the drawbacks of doing so are leading companies to rethink the situation. Namely, return production to their countries of origin. This "return home" is what is known as reshoring, and for years it has been becoming increasingly popular and carried out.
But what is it What has motivated reshoring to gain strength?? What are those drawbacks of producing in other countries? And most importantly, what are companies going to gain by returning productions to their country of origin? Next, along with the answers to all these questions, we explain what Reshoring is and what it is about.
What is Reshoring?
It is the process by which companies bring back the manufacture and production of its products to the countries of origin. Reshoring is also known as inshoring, onshoring or backshoring. This phenomenon occurs motivated by the loss of advantages that previously made production outside the country profitable. The great example is China, where many companies had set up their production centers and are now returning to the countries where they come from.
Why this has taken on greater relevance in our days can be found even in the news. The first explanation is that certain countries have seen the price of labor rise. If we have what to pay the salary is more expensive, this becomes a disadvantage compared to what once could be a motivation and economic interest on the part of the companies. Also, during the years prior to Covid, the trade war between the USA and China meant that it might not be as interesting depending on what imports and exports.
The case is that among other countries, 2020 was marked by the supply chain outages due to Covid with a global impact. This was another incentive for many more indecisive companies to consider and start reshoring policies. The phenomenon did not stop, and recently this 2022 due to the war between Russia and Ukraine and the different measures and positions adopted by the different governments, have helped boost reshoring among many companies.
What is offshoring?
It is the opposite process to reshoring. This is the transfer of the manufacturing process of goods to foreign countries. usually motivated by reduce costs in manufacturing processes due to labor or raw materials. It was especially popularized in recent decades due to the increase in the wages of workers in developed countries.
There were many factors that influenced the decision to relocate companies. Not only the desire to make the processes profitable by reducing costs, eventually some workers were not entirely willing to do certain jobs. This phenomenon could be the consequence, not so much the cause, that the academic level in general increased. Many of these highly qualified people would then be the ones who would work in research and development from their countries of origin.
What is nearshoring?
Another term that has become popular is nearshoring. It's a middle way between reshoring and offshoring. It involves moving the production centers and relocating them to a country close to the country of origin. So some competitive advantages are pursued when the old location is no longer as profitable or attractive, and proximity to the location is valued.
We have been able to appreciate this process with the transfer of several US companies that were located in China that have now been transferred to Mexico. In this way, companies find a balance between quality, profitability and security in their businesses.
What advantage does reshoring have and what opportunity does it offer?
A continuously developing world brings business challenges that force you to leave your comfort zone to be successful. A reverse gear in the transfer or relocation of companies puts to the test the approaches that had worked until now. Technological evolution and automation of the processes help to reduce the personnel costs that those areas could occupy. In this way, efficiency and optimization of resources are gained, being able to transfer human capital to tasks that provide added value to products.
In turn, the products are less and less standard, and opening different lines and business diversifications while being close to the consumer helps ensure that any adversity does not have such a considerable impact on companies. For a world that has changed again, reshoring is once again attractive and be close to consumers.
Another reason is respect for intellectual property which may not always be regulated as in the country of origin. This problem directly affects the company and can also discourage the development of its products if they can later be replicated. Research and development tends to occupy a large percentage of profits in many companies.
Conclusions
It can be paradoxical that companies that had left to produce outside their country of origin suddenly begin to return. Although not in the same way, these types of practices or ways of operating are not something new. For a long time, and for different reasons, businesses with a focus outside the region have been commonplace. In each of these stages of relocation or return, new challenges have arisen that They have made the way of doing business evolve.
Despite the challenges that reshoring entails, this will drive and seek new ways to focus production. In the same way, it would also be possible that, as in the past, a different approach could be taken this time. If we can correctly focus the expendable human capital in the new automation processes, the world also has an opportunity to give a qualitative leap in the way of doing things.