Reshoring Revolution: A Special Report

Reshoring Reversal

This is resilience with a specific destination. And the reshoring race constitutes a huge reversal of the fashion of a generation ago, when consultants encouraged American manufacturers to move production to “the world’s factory” in China and Wall Street pushed an “asset-light” business model.

Indeed, U.S. manufacturers are now seeing this phenomenon through enough of a common lens that “they are looking to each other to see if there will be enough critical mass in the reshoring movement to build a supplier ecosystem that can rival what China has built—either domestically or in a nearshore location,” as an A.T. Kearney report puts it.

Take apparel manufacturing. The U.S. industry was given up for dead after companies moved basic yarn and fabric production to China. But now, Brooks Brothers and Under Armour are among big brands that have been reshoring clothes-making operations. Plus, Walmart is in the process of sinking a pledged $350 billion to support U.S. manufacture of clothing and other goods

Prasad Reddy, the majority owner of Decatur, Texas–based Twisted X, also is trying to redomesticate this sector. The company turns out about 3 million pairs of shoes and Western boots each year from factories in China and Mexico, where it’s still relatively inexpensive to pay for the 90 sets of hands that touch the typical pair of boots in the process. There’s also the matter of sourcing as many as two dozen different components, from eyelets to soles to laces, that must be supplied for each pair. 

“Right now, we’re experimenting with making some products in El Salvador,” Reddy says. “The samples look good, and we may be able to bring in some components from Mexico and other places. We’re also trying to bring some production to Texas, but Americans have lost their [shoemaking] skills. So we have to start from scratch, with training.”

Two of the most determinative global industries of the future, microchips and electric vehicles, are leading the onshoring surge. Intel, GlobalFoundries and some foreign manufacturers have announced huge new chip-making projects in the United States, encouraged by subsidies in the federal CHIPS and Science Act of 2022.

The legislation “is triggering lots of action,” says Sumit Dutta, consulting leader for supply chains and operations for EY Americas. “Some is fast-tracking of decisions that might have happened anyway, but other companies are taking the plunge because of it.”

The world’s accelerating shift toward EVs also plays well for U.S. manufacturing, even as American consumers bring up the rear among Western markets in embracing the technology. Facing greater vulnerability of production in Germany and in China, for instance, Volkswagen is embracing North American manufacturing more than ever, with plans to invest $7.1 billion to expand factories in Chattanooga, Tennessee, and in Mexico.

“The more you spread out your footprint, the bigger your independence from certain areas,” says Reinhard Fischer, senior vice president of strategy for Volkswagen Group of America. “We want to grow North America up to be the third leg of the stool that the group worldwide can stand on. Electrification gives us the chance to accelerate that.”

Workforce Worries

As they ponder various types of “shoring,” 50 percent of respondents to the Chief Executive/IEDC survey cited skill and availability of the workforce as the most important consideration; 36 percent mentioned infrastructure and transportation access; 27 percent, political considerations and controversy; 27 percent, proximity and access to key markets; and 23 percent, taxes and government incentives.