A new report from Capgemini suggests that, for U.S. manufacturers, the dominance of offshore production is coming to an end. 

The survey of 600 U.S. manufacturers found a whopping 82% of respondents saying they plan to move a substantial amount of production for American markets either onshore or to a nearshore location within the next three years.

U.S. companies expect to invest $1.4 trillion to make it happen. It’s all part of a trend that Capgemini calls “reindustrialization” — defined by the consultancy as “the reconfiguration of supply chains and global manufacturing capacity, including reshoring and nearshoring production, as well as diversifying and investment in domestic manufacturing production.” The effort could involve construction of new factories as well as the upgrading and modernizing of new ones, aided by cutting-edge technologies such as artificial intelligence and machine learning.

The top driver behind reindustrialization strategies, according to the report, is growing pressure on supply chains to boost reliability. That’s followed by the need for sustainability, worries about geopolitical tensions, the desire to boost competitiveness, changing government trade policies, rising labor costs, and a need to reduce overall supply chain and logistics expense.

The push for reindustrialization can be seen across a broad spectrum of industries, Capgemini reports, including chemicals, metals and mining, consumer products, utilities, transportation, life sciences, telecommunications, aerospace and defense, energy, industrial machinery and equipment, automotive and electronics.

Signs of a move by U.S. manufacturers away from offshoring have been evident for years, motivated in part by rising factory wages in China; growing trade tensions between China and the U.S., leading to the imposition of duties on a wide range of products and components, and a desire to boost supply chain resilience and dependability by shortening supply lines. Only recently, however, has the trend begun picking up speed. According to the Capgemini report, an average of 62% of organizations began crafting their reindustrialization strategies within the past two years. The obvious correlation is with the COVID-19 pandemic, which seriously disrupted production and supply, and sent producers scurrying for alternatives to traditional — and often distant — sourcing.

The obvious loser in this scenario is China, which has accounted for a commanding share of cheap offshore production on behalf of the U.S. and other countries over the past several decades. But the picture is broader than that, says Amarendra Phadke, chief technology officer in the North America Consumer Products and Retail Practice of Capgemini Engineering. “Labor cost is just one of the factors,” says, citing recent advances in technology as an equally important reason for rethinking global supply chains. 

For manufacturers serving U.S. markets, the big winner in the nearshoring effort is Mexico. Fifty-four percent of respondents to the Capgemini survey plan to increase investments in that country in the next three years, as part of an effort to reduce reliance on production in China.

In any case, it’s not a matter of abandoning China and other traditional offshore manufacturing centers outright, Phadke says. For the 600 U.S. manufacturers surveyed by Capgemini, domestic production — located in the country of their headquarters — accounts today for 46% of their total production capacity. The survey sees that figure increasing to 48% in the next three years. Nearshore production, today amounting to 28% of the total, should climb to 34% over that time. But the big story is the drop in offshore production, which is expected to fall from 26% to just 17% of the total. (Three years ago, the number stood at 34%.) “This evolving trend, consistent across countries and industries, signifies a clear emphasis on drawing operations back to the domestic market,” the Capgemini report says.

The crafting of reindustrialization strategies for the coming years involves a nuanced conversation that stresses a regionally diversified supplier base. Still, the trend clearly signals a decline in offshoring and an interest in new technologies that make nearshoring and onshoring possible. Phadke says producers are “micro-segmenting” various regions with an eye toward satisfying consumer demand for specialized product. Expect AI to play an increasingly important role in that effort, with 94% of surveyed companies saying they plan to deploy some degree of generative AI in their plants in the next three years. The technology will allow facilities to draw on multiple sources of data for maximizing plant productivity and deciding the best place to manufacture goods.

Labor is always an issue, regardless of where companies decide to build plants. Phadke says a significant portion of manufacturers’ investment in reindustrialization will be in the form of workforce training and upskilling. That’s essential at a time when plants are becoming highly automated, requiring a whole new set of skills among the humans that support those systems.

Shifts in sourcing don’t happen overnight, and the scale of the effort described by the Capgemini report suggests that manufacturers are likely to encounter numerous challenges as they strive to nearshore and reshore production in a time of disruption and uncertainty. Still, the Capgemini report says, “Our research reveals a prevailing optimism among executives, with 68% of executives confident that reindustrialization can drive innovation and technical advancement.”