Lifset: Re-shoring on rise: key considerations for manufacturers

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Olena Liveset

The process of relocating US manufacturing centers was already underway in 2020. Many of the world’s largest companies wanted to reduce foreign dependency and respond to pressure from stakeholders to minimize carbon footprints.

Then, the COVID-19 pandemic demonstrated how quickly complex networks of distant supply chains could falter.

BofA Global Research has found that companies in more than 80% of global industries have experienced supply chain disruptions during the pandemic. Thus, three-quarters of companies are now accelerating and expanding the scope of relocation plans.

Businesses should consider logistical planning and relocation costs, and perform cost-benefit analyzes to weigh their investments against opportunities for job creation and future growth. This is particularly important for companies facing financial difficulties due to the pandemic. Offsets such as automation, tax breaks, low-cost loans, and other grants can help ease the financial burden in the short term, as can spreading the costs over several years.

Another catalyst for offshoring is the shift to stakeholder capitalism, where companies focus not only on the interests of shareholders, but also those of consumers, employees and communities. In fact, 75% of companies in North America and Asia-Pacific, and 67% of companies in Europe, expect to face additional government scrutiny of supply chains. , boards of directors and shareholders. Operating in regions with a strong track record of fair labor practices and human rights will be increasingly essential to meet growing stakeholder demands.

A sustained recovery in the manufacturing sector has multiplier effects on the whole economy. It is estimated that seven indirect jobs are created for each new job in durable goods manufacturing. Other multiplier effects include higher wages, higher R&D spending, higher tax revenues and the creation of industrial clusters. Investors may want to position their portfolios towards sectors that will benefit from this momentum – engineering and construction machinery, factory automation and robotics, electrical and electronic equipment manufacturing and application software, to name a few. some. Whether these improvements are direct or indirect, manufacturers play a crucial role in continued economic growth and development far beyond the supply chain.

Relocation is rapidly becoming a new economic, geopolitical and environmental reality. If manufacturers weigh the above considerations against their own circumstances and goals, they have the opportunity to move forward more fairly and efficiently.

Olena Lifset is Senior Vice President of Global Commercial Banking at Bank of America Oklahoma City.

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