Dan Dreyfus, global customs leader with EY, lays out the options that manufacturers are considering, as they seek to reduce their dependence on China and shift production to other regions.
The idea of reshoring or “multi-shoring” isn’t new, says Dreyfus. Manufacturers with heavy reliance on production in China have been aware of that country’s growing disadvantages for a few years. But the COVID-19 pandemic has been “a major driver” in prompting businesses to take action. They’re thinking seriously about the long-term implications of reshoring strategies on manufacturing, distribution and access to markets.
The question arises, however: Reshoring to where? It’s not just a question of shifting production from China to the U.S., Dreyfus says. Multiple countries are in play, as possible sources of goods and raw materials. Recent conversations have centered on the concept of “friend-shoring,” whereby producers locate plants in countries that have strong diplomatic ties with the U.S. The strategy has the advantage of bypassing the trade tensions that have arisen between the U.S. and China in recent years, particular with regard to the latter’s use of forced labor in Xinxiang Province.
“Near-shoring” is also on the table, as a means of shortening supply chains and the accompanying risk of disruption caused by long distances between production and ultimate markets. In some cases, though, that option can conflict with friend-shoring, when the “friend” is a country that’s no closer to U.S. buyers than China. Friend-shoring raises another complication, Dreyfus says, if it involves choosing one U.S. ally over another.
Any move toward altering sourcing strategies is a long-term process, and won’t solve the immediate problems that supply chains are facing today. Still, manufacturers and merchandisers are taking a serious look at the idea, with an eye toward avoiding the risks of single-sourcing, Dreyfus says.
Timely, incisive articles delivered directly to your inbox.