With news this week of Foxconn/HonHai Group opening a brand new manufacturing plant in Wisconsin, could we be about to enter a new era where near-shoring becomes the norm for all US companies? Of course, this isn’t the first example of a company launching a new manufacturing plant in the US recently with Pegatron moving into the US electronics manufacturing market and Flextronics deciding to launch facilities in Dallas…but why is this the case?
In case you were unaware, ‘near-shoring’ describes the process of preferring to keep all facilities nearby rather than ‘off-shoring’ where certain parts of a business can be located on the other side of the world. Although the products may not necessarily be manufactured within the US, they’re certainly closer than they used to be. At this point, we should dispel a common myth; no US company could ever operate 100% out of the US if they want to become an international brand.
Balanced Portfolio – According to experts, it would be unrealistic to expect US companies to operate everything from their home country and this is before we even consider the cost. This being said, near-shoring is quickly becoming a key element within a ‘balanced portfolio’ and this all comes down to the sheer volume of information consumers have available nowadays.
In years gone by, there was a strong emphasis on finding the cheapest prices in the market which is why off-shoring became so advantageous. If we compare this to a recent Consumer Report, four in every five Americans are now more than happy to pay more money for a product that was manufactured closer to home. In terms of prices, a significant portion of the study said they would pay up to 10% more just because it had been made in or around the US.
Furthermore, the political instabilities of other countries is also pushing the US towards near-shoring. If we look towards the overall behavior of Russia, terrorist activity in much of Europe, and Brexit (the United Kingdom leaving the European Union), these three events alone have left the whole country worried. Even though these events don’t suggest anything for the safety of US soil, consumers still feel compelled to buy products that were produced on the safe land. If we combine this with the ever-changing cost of overseas business, it’s fair to say US companies will need facilities close to home if they want to see success in the years ahead.
Additionally, we should also mention the improvements of facilities and available talent on the shores close to the US. As mentioned previously, near-shoring doesn’t have to mean building new facilities in the US because it also includes nearby shores such as the Caribbean and Latin America. In the last decade, these two locations have seen vast improvements with talent and innovation hubs which are attracting the attention of many US companies.
What Does This Mean? – Ultimately, this is great news for everybody involved in the process. Firstly, the customer gets what they want because they have products made at home. Secondly, the company sees a boost in sales and having everything closer to home boosts efficiency. Thirdly, the government excels because more money is staying within the local economy rather than escaping to far away countries. Fourthly, regions are being transformed by the addition of large companies. Suddenly, thousands of jobs are being created in all corners of the US and nearby countries.
Just as we have seen with Foxconn, the local governor believes their addition will transform Wisconsin the way Silicon Valley transformed San Francisco. With this happening off the back of just one company, just imagine the benefits when more start to return!