The global pandemic has exposed the fragility of supply chains, and businesses have been forced to consider alternatives to traditional outsourcing. Reshoring and nearshoring have become popular strategies for manufacturers looking to reduce risk and improve resilience. According to Kearney's 10th annual Reshoring Index report, the trend has moved beyond the drawing board and into a commercial reality.
The Kearney index measures the degree to which American manufacturing is returning from low-cost Asian nations. The index utilizes the manufacturing import ratio (MIR), which is calculated by dividing the import of manufactured goods from 14 low-cost Asian countries by the gross domestic manufacturing output of the United States. The report shows that the MIR decreased from 97.1 in 2020 to 93.9 in 2021, indicating that more manufacturing is being produced domestically.
Geopolitical tension is one of the key drivers of the reshoring trend. The report notes that executives may not consider geopolitical risk a top-five reason for reshoring, but events like Russia's invasion of Ukraine serve as a reminder that authoritarian leaders do not always think in the same way as business leaders.
China's political elite may prioritize ultranationalistic expansion over stable economic growth, which could lead to a potential invasion of Taiwan. These concerns have prompted many companies to bring manufacturing back to the US or nearshore to countries like Mexico.
The report also highlights the impact of the pandemic on reshoring. The disruption caused by lockdowns and border closures has made it difficult for businesses to operate in low-cost countries, leading many to consider alternative locations.
Furthermore, the pandemic has exposed vulnerabilities in supply chains, with many companies experiencing shortages of critical components. Reshoring and nearshoring can help reduce these risks by increasing control over production and reducing lead times.
The report's findings show that reshoring is not just a theoretical concept but a commercial reality. Ninety-six percent of surveyed CEOs said they are evaluating reshoring their operations, have decided to reshore, or have already reshored, up from 78% in 2020. This suggests that the trend is likely to continue in the coming years, driven by a desire to reduce risk and increase resilience.
In conclusion, Kearney's report highlights the growing trend of reshoring and nearshoring as a commercial reality. The pandemic and geopolitical tensions have contributed to the shift, with more companies looking to reduce risk and improve resilience. As a result, businesses are bringing manufacturing back to the US or nearshoring to locations like Mexico. With 96% of CEOs considering reshoring, it is clear that the trend is here to stay. Companies that can adapt and take advantage of this shift are likely to emerge stronger and more resilient in the post-pandemic world.