China is a manufacturing powerhouse. In the last three decades, China moved up from seventh to second place in the list of the world’s largest manufacturers. No other country has shown such consistent and significant growth. That might be the reason that it is a common belief that all manufacturing will eventually be done in China. However, this might not be the case.
More and more businesses in the US are reconsidering offshore manufacturing and turning toward what is known as near-sourcing. Near-sourcing means choosing local suppliers over distant vendors, and it is becoming a growing trend. A recent survey conducted by the consulting firm Boston Consulting Group estimates that near-sourcing will create 5 million jobs and $150 billion dollars in exports by 2020.
In fact rising wages, logistics, gas prices, and other factors are pushing US companies to rethink whether manufacturing in China is really the right thing for their businesses. If you are currently manufacturing in China or another low-cost country but are considering making the switch to near-sourcing, here are a few things to consider.
First, you must analyze the current local-business environment. Check if there are relevant suppliers nearby and analyze the costs related to making the switch and engaging with the suppliers. In this context you must also analyze the competitive environment in your industry and market. On one hand, if price is a big decision factor for consumers, maybe keeping some manufacturing offshore is crucial for you to stay competitive. On the other hand, if time to market plays a big part in consumers’ decision making, having your manufacturer close by may result in greater market share and more satisfied customers.
Another thing that might affect your decision is the dynamism of your business; if your product line is agile and constantly changing, maybe having your manufacturer closer is a smart decision. The cost of constantly having to communicate long distance and translate product specifications might create unnecessary challenges for your business.
Last but not least, you must consider the different risk factors. Compare far- and near-sourcing on issues such as quality assurance and the risk of losing market share to better-quality alternatives, legal exposure as a result of product-liability claims, risk to intellectual property, etc.
Need help making the decision? Reshoring Initiative, an industry-led effort to bring manufacturing jobs back to the United States, has developed the Total Cost of Ownership Estimator in order to help you make the right decision for your business.