Large portions of offshored manufacturing may soon be returning thanks to companies combining their nearshoring production to Mexico, Central America, and even Canada, with manufacturing and assembly in the United States. Here's the catch: Chinese and other Asian countries are increasingly setting up base in Mexico.
The findings were revealed Wednesday in ninth-annual Reshoring Index released by global management consulting firm Kearney.
What is the Reshoring Index: The Reshoring Index is a unique barometer for tracking the extent to which America is reshoring manufacturing back from low-cost countries (LCCs) and regions in Asia that have benefitted for decades from US companies offshoring manufacturing.
The Calculations: The Reshoring Index is determined by calculating the manufacturing import ratio (MIR), dividing the import of manufactured goods from the 14 Asian LCCs by the US domestic gross manufacturing output. The Reshoring Index reflects the year-on-year change in the MIR.
The Current Numbers: In 2021, US imports of manufacturing goods from the tracked LCCs totalled 14.49% of US domestic gross manufacturing output, up from 12.95% in 2020. This resulted in a negative 2021 Reshoring Index of -154.
Kearney has calculated a negative Reshoring Index for two years in a row, reversing and cancelling out the 2018–19 move into positive territory that was triggered by the US–China trade war. Since 2020, the Reshoring Index has gone down an additional 67 basis points.
The Kearney Analysis
Patrick Van den Bossche, Partner and Lead Author, Reshoring Index report, points out:
- The near to midterm future of reshoring looks more promising than it has in any year since we started tracking the Reshoring Index in 2013.
- Previous Kearney Reshoring Index reports have highlighted that, because of their dependence on overseas suppliers for materials, parts, and components, companies that have considered or even executed reshoring plans often wrestle with challenges associated with operating very long global supply chains.
- The ecosystem of suppliers that China and other Asian countries have been building for the past three decades are closer to the US.
- More and more Chinese and Asian companies are setting up manufacturing operations in Mexico.
- These overseas suppliers, which American companies have been depending on, are building or acquiring locations closer to the US, to then ship their manufactured components and parts for final, probably highly automated, assembly into the United States.
- This shift will allow companies to claim the products were domestically produced, thus redefining reshoring in ways that reflect the evolving realities of new global supply chains by incorporating certain nearshored activities.
- Redefined, reshoring is likely to catch on faster in some industries than it does in others.
