Covid-19, economic uncertainty and fragile supply chains are some of the factors behind a rise in reshoring. 

When manufacturing firms began electronics offshoring in the 1990s caused by low tariffs as China had special status with the WTO, it made sound financial sense. Factors such as rising wages and energy were pushing up the cost of production. Low-wage economies – especially Asia – offered a way for manufacturers to remain competitive.

Fast forward to today, and the reverse process – that of reshoring – is gathering pace. Just as the time was right for offshoring in the 1990s, so a perfect storm of conditions is pushing the tide back towards more domestic manufacturing.

OEMs that have spent years working with partners in the Far East may now find that seeking out UK subcontractors makes more sense. Some of the reasons for this are high freight costs, political and economic uncertainty, long lead times and potential loss of IP.

The rising cost of freight is a huge factor in reshoring’s favour. Verity Davidge, director of policy at MakeUK, said prices have become “unmanageable” for some manufacturers, telling The Guardian: “Logistics remain a big part of the high cost that businesses face.”

While rising logistics costs push the economic argument for reshoring, there are also other factors at work – such as uncertainty of supply. Sourcing cheaper components from abroad makes no sense if those components turn up late.

Last year, images of the massive tanker blocking the Suez Canal brought home the inherent fragility of supply chains. One estimate said the incident froze around $10 billion in trade per day.

Changing landscape of the electronics supply chain

A recent article in Investment Monitor said that Covid-19 has also changed the landscape. Among other factors, the pandemic has caused shutdowns at factories, playing havoc with deliveries. (China has recently announced a further series of lockdowns.)

Rosemary Coates, of the US-based Reshoring Institute, said in the article: “For the first time in my career, I saw executives not just looking for the cheapest low-cost production site, but asking: ‘How can we make sure there’s no interruption in our supply chain?’”

Despite the swing towards reshoring, it should be put into context: most manufacturing will continue to be carried out overseas. However, UK-based manufacturers of high-value items – such as electronic assemblies – can benefit by outsourcing to home-based companies.

As a UK-based contract electronic manufacturer, Diamond Electronics offers both manufacturing and procurement services. In manufacturing, our scalable contract assembly service – called Managed Contract Manufacturing (MCM) – matches customer needs with the most appropriate partner. In addition, our expertise in component kitting allows us to source parts more efficiently – typically saving customers 10% in procurement costs.

Covid-19 has made us all question the reliability we put on existing supply chains, meaning that bringing manufacturing closer to home can reduce these risks – something recognised by the United Nations.

“Automation and reshoring allow for more flexible adjustment to changing demand,” said Piergiuseppe Fortunato, Economic Affairs Officer at the United Nations Conference on Trade and Development (UNCTAD).

“Most analysts concur that the pandemic will reinforce relocation and reshoring.”

While Diamond remains linked into global supply chains – for component sourcing – we act as a local manufacturing partner for OEMs. Because we’re based in Cheshire, any UK-based product manufacturer can come and visit us. Come and inspect our facilities and talk to our team face to face. We can deliver a reliable, flexible sub-contracting experience – with the shortest possible supply chain.

Offshoring has been part of UK manufacturing for a generation. The conditions are now right for sustained reshoring – if OEMs are willing to make the leap.