From the Publisher: Reshoring vs. Regionalization
I don’t like the term reshoring… let me tell you why.
Reshoring has a political context to it that implies that manufacturing that has shifted away from a country will be returned and restored in that country, thereby bringing back jobs and revenue to its citizens. The whole concept has a jingoist, anti-globalism ring to it. This simply is not realistic, especially for the electronics manufacturing industry. The material supply chain is now decidedly global, and to reverse that completely is not necessary or easily achievable. That isn’t to say that some rebalancing doesn’t need to take place, for example in semiconductors. We clearly need more fabs in each region, both to respond to a dramatic increase in demand and to shorten supply chains. But making each country completely self-sufficient would be wasteful and inefficient.
One of the smartest, most experienced, and insightful executives I have ever met in the electronics manufacturing services industry is Charlie Barnhart. He taught me that the definitive trend in all of the data over the years, and the most efficient manufacturing strategy, is regionalization. Regionalization is a strategy that says – build in a region for that region! A simplistic analogy is: if you are raising cattle the most efficient supply chain to feed those cattle is to grow the food on the field next to where the cattle are.
Regionalization means that each region of the world will be capable of building electronics manufacturing capacity intended for OEM customers selling in that region. The Americas, Europe and Asia all have their own low labor cost regions and higher cost regions. But it isn’t just about the cost of labor, is it? Each region needs to increase its pool of engineering talent, as well as the whole spectrum of technical skills required for Industry 4.0, 5.0 and beyond. Each region should also have a material supply chain that is as short as possible. The more time zones you put between where an order is placed and where it is fulfilled simply increases risk and cost to the supply chain.
Harry Moser has done some good work compiling data and surveying companies about their global manufacturing strategies. His Total Cost of Outsourcing calculator is quite useful. But to me his framing the data as ‘reshoring’ can be misleading. In his recent report, he says, “Despite COVID, reshoring numbers were up in 2020. Reshoring and foreign direct investment (FDI) job announcements for 2020 were 160,649, bringing the total jobs announced since 2010 to over 1 million (1,057,054).”
So, this means that he includes FDI as ‘reshoring’. Does that mean then that when TSMC decides to build a semiconductor foundry in Phoenix, that it is ‘reshoring’? TSMC is not an American company. They are not reshoring anything. No, that is all about regionalization.
The proof of the concept for regionalization is by looking at where companies are choosing to do their manufacturing. Chinese and European companies have invested in Mexico in order to service demand from customers in the United States. Likewise American and Asian companies have established facilities in Eastern Europe to supply demand from customers in Western Europe.
Other terms used synonymously with reshoring that I also don’t care for are right shoring, nearshoring, onshoring and all the other political blather that has sprung up.
So, let’s call the trend what it is – regionalization!