Offshoring has had a huge impact on British manufacturing over the last decade, with many UK-based manufacturing firms shifting sourcing to low-labour cost locations such as China, with the latter running hefty trade surpluses with the UK.
But in recent years this shift of activity overseas has cooled and there have been some tentative signs of “onshoring”, in certain sectors at least, as the factors which propelled such outward shifts, notably low labour costs, have been eroded.
Of course, firms will still look to establish new production facilities overseas when they are expanding into new markets but there appears to be less impetus to then import the goods produced back to the UK.
In fact, repatriating activity – including some sourcing – to the UK is very much on the agenda, although the debate has yet to catch up with that in the United States where it has become a major policy issue.
In this sense the UK needs to consider how it can tailor an industrial policy focused on building manufacturing capacity, particularly in the supply chain.
There is a ‘window of opportunity’ opportunity here.
A combination of a more competitive exchange rate (despite the very recent appreciation of sterling), increased transport costs, rising wages in key areas of China, and a greater awareness of supply chain resilience have all contributed to a perceived change in some business fundamentals.
The ‘resilience’ issue has had particular resonance in the wake of the Japanese earthquake and tsunami.
Such concerns are more widespread than the auto industry, however: a recent Engineering Employers’ Federation (EEF) survey found that even during the 2008-2009 recession some 60 per cent of British firms had concerns over the vulnerabilities of overseas suppliers, as against 20 per cent being concerned over domestic suppliers.
Not surprisingly, around two thirds of firms had re-evaluated their supply chains to minimise such risks, with some bringing production back to the UK and other sourcing more components locally.
More firms would ‘buy British’ if the components were available from local suppliers, and if end users and component suppliers could be ‘matched up’ in the UK, thereby offering the potential for some supply chain activity to be repatriated. Rebuilding supply chains locally can also offer customers greater flexibility in production as well as greater resilience.
The issue of reliable delivery was highlighted in a 2007 EEF survey; high-tech firms in particular saw logistics as a key competitive strength, and the auto and electronics sectors saw this as increasingly important in the future. This shouldn’t be a surprise, as proximity matters in ‘just-in-time’ processes.
So for various reasons, the possibility of repatriating certain manufacturing activities – and especially the sourcing of some components back to the UK – does offer potential, particularly in terms of rebuilding some of the UK’s fractured supply chains.
On the latter, the coalition government has recently unveiled a £125 million Advanced Manufacturing Supply Chain Initiative to help develop local suppliers around the UK’s major manufacturers.
The fund is aimed at supply chain companies and can be used for capital expenditure, skills and training, and R&D projects. The scheme aims to build on an earlier automotive-focused Regional Growth Fund bid by several local enterprise partnerships (LEPs).
While a welcome start, the overall amount of funding on offer, £125 million, is small, and due to the minimum project threshold value of £2 million, bids often need to be from several companies clustering together.