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Reshoring Revolution: A Special Report

Reshoring operations back to the U.S.
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A new Chief Executive / IEDC survey of CEOs dives deep into one of the hottest trends in business—the race to bring production back to the United States from China.

Editor’s Note: on March 22 we’re holding our first Reshoring America workshop for C-Level leaders and public company directors, featuring a lineup of world-class experts to help you bring operations back the U.S. more intelligently, profitably and with less risk. Join us >

Zenni optical is expanding production of its ophthalmic lenses in Ohio, switching capacity from China. Commercial Vehicle Group is halving exposure to Chinese factories for supply of its automotive seat frames by building new plants in Morocco and Mexico. And Taco Comfort Solutions is spending more than $10 million to erect a new warehouse in Rhode Island to manage parts it makes in Europe and Vietnam.

“We’ve put ourselves at huge jeopardy by becoming so dependent on other countries and not having our own capabilities here,” says Cheryl Merchant, CEO of Taco, a Cranston, Rhode Island-based manufacturer of industrial water-management systems. “We could just shut ourselves down if we continued with that. So everyone is scrambling to reverse the situation.”

These three new developments are only fresh trickles in the vast, ongoing global movement of capital and utilization of labor. But in confluence with thousands of similar initiatives, they have helped form a virtual tsunami of new manufacturing investment being relocated from overseas, an opportunistic tidal wave of “reshoring,” “nearshoring” and “onshoring” that may produce nothing less than a once-in-a-century opportunity for the rebirth of economic sovereignty for North America.

 Job announcements for reshoring initiatives and foreign direct investment in U.S. plants surged to a record high of around 350,000 in 2022, according to the Reshoring Initiative, up from 260,000 in 2021 and 150,000 in 2020. The biggest movers were makers of electrical equipment and components, chemicals and transportation equipment.

A Manufacturing Revival

Slapped hard by the supply-chain mess brought on by the pandemic, worried about geopolitics that are the hairiest since the Cold War, enabled by automation advances in manufacturing and logistics, and encouraged by new government incentives such as the CHIPS and Science Act, many manufacturing CEOs are pivoting toward an expensive domestication of supply chains even as they’re coping with extreme inflationary pressures and the expectation of an economic downturn in 2023.

“Before, there was a lot of conversation in trade magazines, but it was kind of quiet when it came to investor calls, and that’s now flipped around,” says Patrick Van den Bossche, a partner at Kearney consultants and leader of its annual Reshoring Index. “More companies are talking about reshoring and opening themselves up to investor communications to make that claim, and they’ll be held responsible if they don’t do it.”

EY partner Claudio Knizek says companies “are looking at their manufacturing footprint a lot more holistically. In the 1980s or so, the focus was on holding costs down. Now, many companies realize it’s not only about costs but an ability to pivot and make changes to your supply base and production quickly, in order to service demand,” adds the leader of the consultancy’s global advanced manufacturing practice.

Survey Says

So how widespread is the trend, and what are CEOs focused on when it comes to deciding how, when and where to relocate? Chief Executive, in partnership with the Indiana Economic Development Corporation, recently conducted a survey of CEOs nationwide to find out. One number immediately jumped out: 58 percent of CEOs whose companies have had recent operations outside of the United States now are considering reshoring, with 18 percent pondering the repatriation of three-quarters or more of their operations.

Reshoring assembly and parts manufacturing was the focus of 68 percent of intentions in the survey. Only 10 percent of reshoring plans involved R&D operations, and only 9 percent call-center and support operations.

The main drivers were geopolitical risk exposure, cited by 48 percent of respondents; supply-chain resilience, 34 percent; closer management and oversight, 33 percent; tariffs and freight costs, 27 percent; proximity to customers and domestic markets, 22 percent; and brand image, 21 percent.

And there’s urgency: 72 percent of respondents said they’re planning to fully reshore operations within three years, while 74 percent said their decisions to reshore had taken shape in the last three years.

“All reshoring is going to have to take place in highly productive sectors: not in canning tomatoes or in bulk steel parts, but in very high-end assemblies and highly specialized items,” says Michael Hicks, a business professor at Ball State University. Meanwhile, a renormalization of the transpacific supply chain in recent months has removed some pressure to yank production from China.

Also, it’s not all or nothing. “It’s not an either-or, staying in China or leaving,” says Van den Bossche. “It’s what can we do to hedge ourselves a bit, and there will be some cost implications in that, bringing ourselves to more expensive labor costs, doubling up on some capacities and building in redundancies.”

But this movement is not simply an extension of the old rah-rah theme, where early pioneers such as WeatherTech mainly relied on product innovation and superior brands to carry their made-in-America bets, rather than the other way around. Today’s reshoring push also goes far beyond the lesson of the pandemic to build resilience into global supply chains.

Reshoring Reversal

This is resilience with a specific destination. And the reshoring race constitutes a huge reversal of the fashion of a generation ago, when consultants encouraged American manufacturers to move production to “the world’s factory” in China and Wall Street pushed an “asset-light” business model.

Indeed, U.S. manufacturers are now seeing this phenomenon through enough of a common lens that “they are looking to each other to see if there will be enough critical mass in the reshoring movement to build a supplier ecosystem that can rival what China has built—either domestically or in a nearshore location,” as an A.T. Kearney report puts it.

Take apparel manufacturing. The U.S. industry was given up for dead after companies moved basic yarn and fabric production to China. But now, Brooks Brothers and Under Armour are among big brands that have been reshoring clothes-making operations. Plus, Walmart is in the process of sinking a pledged $350 billion to support U.S. manufacture of clothing and other goods

Prasad Reddy, the majority owner of Decatur, Texas–based Twisted X, also is trying to redomesticate this sector. The company turns out about 3 million pairs of shoes and Western boots each year from factories in China and Mexico, where it’s still relatively inexpensive to pay for the 90 sets of hands that touch the typical pair of boots in the process. There’s also the matter of sourcing as many as two dozen different components, from eyelets to soles to laces, that must be supplied for each pair. 

“Right now, we’re experimenting with making some products in El Salvador,” Reddy says. “The samples look good, and we may be able to bring in some components from Mexico and other places. We’re also trying to bring some production to Texas, but Americans have lost their [shoemaking] skills. So we have to start from scratch, with training.”

Two of the most determinative global industries of the future, microchips and electric vehicles, are leading the onshoring surge. Intel, GlobalFoundries and some foreign manufacturers have announced huge new chip-making projects in the United States, encouraged by subsidies in the federal CHIPS and Science Act of 2022.

The legislation “is triggering lots of action,” says Sumit Dutta, consulting leader for supply chains and operations for EY Americas. “Some is fast-tracking of decisions that might have happened anyway, but other companies are taking the plunge because of it.”

The world’s accelerating shift toward EVs also plays well for U.S. manufacturing, even as American consumers bring up the rear among Western markets in embracing the technology. Facing greater vulnerability of production in Germany and in China, for instance, Volkswagen is embracing North American manufacturing more than ever, with plans to invest $7.1 billion to expand factories in Chattanooga, Tennessee, and in Mexico.

“The more you spread out your footprint, the bigger your independence from certain areas,” says Reinhard Fischer, senior vice president of strategy for Volkswagen Group of America. “We want to grow North America up to be the third leg of the stool that the group worldwide can stand on. Electrification gives us the chance to accelerate that.”

Workforce Worries

As they ponder various types of “shoring,” 50 percent of respondents to the Chief Executive/IEDC survey cited skill and availability of the workforce as the most important consideration; 36 percent mentioned infrastructure and transportation access; 27 percent, political considerations and controversy; 27 percent, proximity and access to key markets; and 23 percent, taxes and government incentives.

At the same time, 58 percent cited labor availability as the main obstacle, while 53 percent were concerned about increasing the cost of production.

Those numbers underscore why 63 percent of respondents also said automation plays a “central” role or “somewhat” of a role in their thinking. “It’s hard to make the case that you should bring things back to the U.S. and, by the way, your costs are going to go up by 10 percent to 20 percent,” Knizek says. “But if you are able to bring in automation and reduce the amount of labor you need, suddenly you’re in the position where things can work out.”

Despite the local excitement generated by their announcements, EV and chips plants aren’t going to be huge employers of common labor. “The thing that really matters for most of these plants is you’ve got to have a really high number of people with undergrad or graduate degrees to work in these industries,” Hicks says. “Essentially, these plants are going to be fully automated and highly technical.”

Moreover, the employment spoils from reshoring aren’t going to be evenly divided across the country. The pandemic dispersed labor and showed that companies based mainly on manipulation of digital information can succeed amid a diaspora of workers. But manufacturing isn’t that way.

So, much as coastal outposts, including Boston, Seattle and Silicon Valley, were the major winners from the digital-tech revolution of a generation ago, the Midwest stands to gain most from the manufacturing reshoring phenomenon. More respondents were focused on that region than any other in the Chief Executive survey of mainly CEOs of mid-market manufacturers, at 38 percent, followed by the Southeast, at 33 percent. Other regions trailed badly, with only 11 percent of company leaders considering the Northeast and 9 percent the Southwest and California.

Also, as more U.S.- and foreign-based microchip manufacturers establish new production in America, they are likely to flock to where there are already chip plants or to where new plants have been announced, including the Upper Midwest, upstate New York, Texas and Arizona. Likewise for EV production, where the Midwest, mid-South, the Southeast and Texas already dominate automotive output.

And amid all the excitement, it’s easy to forget that it took a long time to offshore, and it will take a while to reverse the trend. Indeed, Ron Ten Berge’s experience illustrates the slog that reshoring can become. His company closed its factory in China and moved production of industrial barrel fans to headquarters operations in Sauk Rapids, Minnesota, in 2019, giving Pinnacle Climate Technologies a decisive head start on the process—or so the CEO thought.

But after figuring the net landed cost of Minnesota-built fans would be “a wash” because of the 25 percent U.S. tariffs on Chinese-made parts and the costs of oceangoing containers, Pinnacle is still paying a penalty of from 5 percent to 50 percent. That’s because the Chinese government subsidizes its steelmakers, meaning American companies can’t supply Pinnacle with stamped steel parts at competitive prices.

 “It’s not simple,” Ten Berge says. “China is the ‘easy’ button, which is why everyone makes everything there. You can reshore. It just takes longer than you realized.”

Bringing It Back: 4 Tips

From CEOs and other experts, here are some pointers for considering and executing reshoring, onshoring and nearshoring initiatives:

• Lead with strategy. “It can’t be a reaction but rather part of a primary strategy for the company,” says Bill Pellino, lead managing partner for consultant BDO’s manufacturing-industry practice. “Include a profitability analysis by SKU or product and identify the biggest exposures for disruption events. For most companies, 20 percent of SKUs generate 80 percent of the revenues, so focus on those.”

Rosemary Coates, head of the Reshoring Institute, suggests adopting “a China-plus-1 strategy, maybe leaving some manufacturing in China for the time being and developing an alternative site in Mexico that is cost-competitive for labor. China-plus-2 would be adding a U.S. manufacturing site.”

• Consider half a loaf. At first, Pellino suggests, “Take a safer, easier approach, like shifting a product line or some of your SKUs, and manufacture them somewhere else, but leave a lot of the Asian supply chain in place for now. Getting things to customers on time is really important, and customers are willing to pay more for that, so you’ll be able to pass on some costs. But it all has to work as a math problem.”

Commercial Vehicle Group “didn’t move our equipment out of China—we dual-implemented” it by tooling a U.S. factory as well, says Harold Bevis, CEO of the New Albany, Ohio–based company. “Let’s say everybody loves each other again and the pendulum swings back: We still have our tools there.”

• Embrace suppliers. “You have to play the ‘Team America’ game and get engaged with suppliers and not treat them as the enemy or as someone to squeeze, but to develop and invest in and partner with, so everyone can do better, and we can do more in the region,” advises Ambrose Conroy, CEO of the Seraph business-restructuring consultancy.

That’s the approach being taken by Zenni Opticals as it reshores production and distribution of eyeglasses. “See if you can get suppliers to onshore some of their supplies and pick up the cost of warehousing and holding all that material on hand themselves,” says Rob Tate, director of U.S. manufacturing for the Columbus-based outfit.

Jamestown Plastics continues to take on reshored production of plastic packaging for a variety of U.S.–based customers. “The whole networking thing, having an extended, domestic, highly skilled supply chain, has so many benefits that you can’t quantify on a spreadsheet,” says Jay Baker, CEO of the outfit based in Brocton, New York.

• Tap into subsidies. The federal Inflation Reduction Act, as well as the CHIPS legislation, can provide a helping hand “if you’re building capital infrastructure that is reducing emissions or touching a renewable-energy resource,” says Bryan Halpin, business-development manager for Baker Tilly.


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