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INVESTING EXPLAINED: What you need to know about reshoring – where a company returns production to their home country
In this series, we break through the jargon and explain a popular investment term or theme. Here’s the reshoring.
What is it?
Actually the opposite of ‘offshoring’. It is a process by which a company returns production to its own country that has previously been outsourced to another.
Offshoring, particularly to Asia, has been extremely popular in the era of globalization because of the huge savings it has brought, especially in labor costs.
You may also hear reshoring referred to as “backshoring,” “inshoring,” “nearshoring,” or “onshoring.” Confusingly, people are starting to use reshoring to shuffle production to a country with a lower cost than China.
Good to be back: Reshoring is a process by which a company returns production to its own country that was previously outsourced to another
Why do I care?
Mentions of reshoring (or one of its synonyms) are the highest since 2005 in investor briefings or corporate results meetings, according to data analyst Sentieo. This is due to the combined impact of Brexit, the pandemic, the war in Ukraine and the blockage of the Suez Canal last year, which disrupted or completely hampered supply chains.
The combination has had a disastrous effect on the budgets of some companies. The costs skyrocketed and production sometimes had to be stopped.
Microchips – essential for cars, household gadgets, fighter jets, cell phones and much more.
Central to these concerns is the Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for 51 percent of the global chip market. Taiwanese manufacturers make 90 percent of the most advanced chips.
The importance of TSMC is so important that its chairman Mark Liu said the world would become “unusable” if Taiwan were invaded by China, which considers the country a breakaway province.
He made the comment during this week’s visit to Taiwan by Nancy Pelosi, Speaker of the US House of Representatives, when she met TSMC executives.
How did this happen?
In 1990, America had a 37 percent share of the global chip-making market. But thanks to a policy of offshoring chip manufacturing as a way to economize, the US now owns just 12 percent, which is why it’s so busy reshoring.
New chip-making factories spring up in Phoenix, Arizona. These are built by Intel, the American giant, and by TSMC.
The new Chips and Science Act will bring in $52 billion (£43 billion) in funding for the initiative, but it is feared that it will only increase capacity by 6 percent in the coming years, while China cut its production by about 40 percent.
What’s happening in Britain?
Gigafactories for the production of lithium-ion batteries and electrolysers for green hydrogen are under construction.
In the wake of a report from the Office for National Statistics published in the spring exposing the chaos caused by supply chain problems, more UK companies said they were looking for recovery.
Make UK, the trading group, says three quarters of companies have increased their use of UK suppliers and half would continue to do so.
Investments in technology, including robotics, should make it easier to compete on costs with the Far East.
More ‘Made in Britain’ products to come!