Manufacturing trends in exporting shift, from off-shoring to near-shoring. This is largely in response to changing labour and fuel costs. So, off-shoring is about moving manufacturing to cheaper cost bases overseas, such as China. Near-shoring involves bringing production back nearer to home as overseas costs rise.
Now the McKinsey global partnership has identified, and named, a new shift in manufacturing, towards “next-shoring“.
What is Next-Shoring?
The American political scientist, Francis Fukuyama, coined the phrase The End of History when looking at the world post-Cold War. While many have taken issue with his theories about the universal triumph of liberal democracy, the phrase itself can equally be applied in other areas as old certainties and ways of doing things disappear.
International trade is one such area, and next-shoring captures a sense of uncertainty where adaptability becomes the most important quality.
Next-shoring is about looking at the bigger picture, rather than simply reacting to economic trends. Deciding where to set up a manufacturing base is no longer a straightforward decision because the centres of innovation and cost-effectiveness keep shifting. There is no longer a one size fits all solution. Companies require individually tailored, strategic approaches.
Irons in the Fire
The McKinsey report identifies key areas that affect decision-making around manufacturing. These are local demand, energy costs and technological innovation.
For emerging markets, meeting local demand has contributed to rising regional investment and employment and consequent rises in the local standard of living with increased wages. Essentially this makes local demand a strong determining factor in the location of manufacturing bases.
Energy costs have, in many areas, come down, either from new sources of energy or the growth in renewables. This then drives manufacturing costs down in areas where they were previously high.
Finally, technological innovation has its own part to play in manufacturing, with large-scale digitalisation ready to call into question established notions about manufacturing costs.
Ultimately this is an ever-changing landscape, where next-shoring is set to become the new norm, for those hungry enough to keep up. This requires manufacturing companies and exporters to develop innovative supply systems to stay competitive, and to develop nimble exporting strategies, which can adapt quickly to changing circumstances.