The allure of making things in China seems to be fading. Spiralling labour costs, the expense of transporting cargo in an age of rising oil prices and continuous question marks over quality mean that many British companies are rethinking the idea that designing here and manufacturing in Asia still gives them the best deal.
The Brits are not alone in thinking in this way. A recent survey of more than 100 US companies revealed that 37% were planning or considering bringing manufacturing back to home shores.
The phenomenon is known as “reshoring” and Lee Hopley, chief economist at the manufacturers’ organisation the EEF, says that it is a trend that will evolve over the next couple of years.
The decision on whether to reshore is not based on a simple equation, she says. “We have to look at some of the reasons companies decided to go there over the past 10 or 15 years. Some of it was about reducing costs, with significant cost advantages in lower labour cost economies like China. And some of them spotted market opportunity – there are advantages to having a presence on the ground.
“One of those reasons may still be valid, but for others there are question marks about that cost advantage. That was being eroded before the financial crisis, as we saw significant increases in energy and freight costs.”
These developments mean that, even with lower labour costs, by the time companies have factored in investments and the cost of moving things around, the final tally for producing in some of these markets is not as cheap as first thought.
On top of the cost question are the issues of quality that plague Chinese-made goods. If quality is not up to scratch or lead times are unpredictable, the benefits to a business of manufacturing in these countries becomes harder to fathom.
Hopley says that the recession has pushed companies to rethink their manufacturing strategy. “It was a shock to the system,” she says. Companies may have lost sight of how they were doing if their manufacturing was thousands of miles away. Losing just one strategic supplier from the manufacturing chain can have significant consequences for businesses.” She adds that several natural disasters have knocked out some strategic suppliers and left companies unable to see what is happening in particular supply chains.
All these developments have led companies to question whether it makes better sense to use local suppliers more.
Whether there is still a clear advantage to having a part of the business thousands of miles away will depend on the company. But it could make particular sense to reshore manufacturing activities that are not labour-intensive and that involve high-value capital. Hopley says: “Market opportunities are shifting. It is a dynamic environment. It’s not one-way traffic – it’s not that it all went to China and that now it’s coming back.”
But some UK companies have already taken the plunge and brought manufacturing back.
One of these is Magmatic, a design company that makes travel products for children. The company’s flagship product is the Trunki, a ride-on suitcase. The item’s manufacture is outsourced and, until recently, was carried out in China and the US. Now, however, the Trunki is made in Plymouth.