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The Global View: Reshoring Depends on the Right Business Ecosystem

Posted By Everette Phillips, September 18, 2012 at 11:13 AM, in Category: Global Value Networks

Everyone is excited about reshoring, and there is no doubt that a trend to do more assembly in the United States is under way. However, where and when a reshoring event occurs depends heavily on the existence of a supporting local business ecosystem.

A business cannot survive without a support system that includes a workforce with specific skills, local suppliers and logistics to enable longer supply chains, and access to customers. Reshoring businesses also require community support—or at least communities that do not oppose the business. All of these components—and a few more—create a business ecosystem.

Governments play a role in creating ecosystems that can support reshoring. They do this by supporting education, facilitating logistics, and by setting regional priorities.

Just as plants and animals flourish in some naturally occurring ecosystems and not in others, certain businesses will flourish in some business ecosystems and not in others. Each region of the country is developing its own business ecosystem, and reshoring manufacturers should look to locate in an ecosystem that best fits their returning business.

Too many people in government, however, have a misconception about the jobs created by reshoring. They focus on the idea that each reshored manufacturing job creates four or more local non-manufacturing jobs. They talk as though these are "free jobs." I think that misses the point. These are not "free jobs" created out of thin air. They are jobs that require the creation of a viable business ecosystem.

In order to enable reshoring, governments and business leaders need to ask themselves what type of reshored manufacturing they want in their communities. Do you want to attract manufacturers that are competing to develop and build the next generation of battery technology? If so, you need to shift educational resources toward chemistry and math, and you need to improve your regulatory knowledge of chemicals and processes used in battery production. In short, you need to be smart and interact with the reshored business in a thoughtful way.

If you want to attract reshored manufacturing that includes machining, you should consider supporting high school and community programs that teach skills related to PLCs and CNC equipment.

If reshoring is to take off, international supply chains are needed. There is manufacturing infrastructure in Asia and other parts of the world that is not going to be replaced. This means that most reshoring activity can only be successful if it is able to access an international supply chain, where bill of material items are imported to support local manufacturing and assembly.

Tariffs and logistics costs will also play a role in determining which reshoring activities are successful and where. Look no further than the debate over tariffs on solar cells. In recent years, cheaper solar cells have helped incite a manufacturing boom in the electrical inverters needed for solar cell installations. But tariff policies pit solar cell manufacturers against inverter manufacturers and solar panel installers. Government policies such as tariffs influence business ecosystems such that some businesses will flourish at the expense of others.

Visa policies will also influence reshoring and onshoring. During the decades-long offshoring phase,  the American economy lost many important skills. Of course, we can train the American workforce to reconnect with these needed skills, but reshoring and onshoring activities require these skills now. We will need to bring some skilled workers to the U.S. to support reshored manufacturing and assembly programs.

Some of this relocation of people with special skills will take place as part of what I call onshoring—the movement of new manufacturing technology from overseas to the U.S. An example of this activity is the lithium ion battery market, where some U.S. firms are buying overseas competitors and innovators and onshoring their manufacturing and technology development.

The jobs that are created as a byproduct of manufacturing reshoring are not "free jobs." They are evidence of a business ecosystem that supports the manufacturing activity. These jobs can only be created if the business ecosystem has the right combination of resources and infrastructure—education, workforce, regulatory environment, transportation infrastructure, etc. Sometimes reshoring can bring a business back to a community that lost it to global competition. But if the local ecosystem has been allowed to atrophy, reshoring might not be possible. Sometimes reshoring will bring the business to a new community in the U.S., a new home where the business ecosystem is more compatible.

Written by Everette Phillips

Everette's experience includes robotics, advanced manufacturing, supply chain management and international manufacturing. After a career path as a robotics engineer helping automate plants in North America, he became a manager of European Operations for Factory Automation & Robotics in Europe for SEIKO living an expat in Brussels then returning to the US as GM for Advanced Mfg Technologies in North America. Currently, as President of Global Mfg Network, he is involved in coordinating production of highly engineered parts, assemblies and products across a wide range of industries in manufacturing facilities located in Asia and North America and Europe. Everette is a regular speaker and panelist on topics related to manufacturing, international business and technologies such as robotics and advanced manufacturing. He has a BS Bioengineering from Cornell and an MBA from the UCLA Anderson School. Everette serves on the board of Cornell Engineering Alumni Association as a Regional VP and on the Advisory Board for Entrepreneurship@Cornell.

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