Last week, UK Prime Minister David Cameron was in Davos for the World Economic Forum, where he discussed his strategy for making Britain the ‘Reshore Nation’. He also outlined what Europe can do to reap the benefits of reshoring.
What is reshoring?
It’s generally considered to be the process where a company has moved business activity overseas (“offshore”) and then has subsequently returned that activity to its original country.
Offshoring decisions have typically been driven by the low costs of doing business in emerging markets. However the increasing erosion of that cost differential (manufacturing wages in China rose on average by 15% annually between 2005 and 2011), coupled with the additional risks and difficulties of doing business in some emerging markets and other overseas locations, has led businesses to reappraise their location decisions. Locating work in Asia is no longer the default option for many businesses and location decisions are becoming more complex and finely balanced.
Evidence from the UK’s Manufacturing Advisory Service (MAS) thus suggests a growing global trend towards reshoring, with significant potential benefits for the UK and Europe more widely, if we are able to take advantage of it.
The UK’s strong and stable economy, competitive corporate tax rates, good regulatory environment, strong legal framework and dynamic labour market mean that UK companies are increasingly looking to reshore manufacturing, textiles, software production and call centre work to the UK instead of outsourcing overseas.
This can also be a success story for other European countries. In cases like Sweden’s with similarly strong, indeed in some ways stronger fundamentals, there is scope for reshoring to play an important role more generally in helping Europe create jobs and growth.
In the UK, as part of the government’s response to the challenge and opportunity of reshoring, UK Trade & Investment (UKTI) and the Manufacturing Advisory Service (MAS) are joining forces to launch Reshore UK. The new joint service will identify reshoring opportunities in UK supply chains. UKTI will use its global networks to attract foreign companies to invest, and MAS (and partners) will help UK businesses to bring work back to the UK.
Reshoring is not a zero-sum game. Jobs will continue to be created in the emerging markets, not least as their domestic markets develop. This is about the UK, and Europe, embracing globalisation and being competitive in the global economy, which increases wealth for all.
A full transcript of the Prime Minister Cameron’s speech can be found here.