SMALL BUSINESS
Software’s Secret Role In The U.S. 'Reshoring' Manufacturing Trend
Morad Elhafed
Forbes Councils Member
Forbes Business CouncilCOUNCIL POST| Membership (fee-based)
Jun 29, 2023,10:30am EDT
As a general partner at Battery Ventures, Morad focuses on growth and private equity investments in U.S. and European B2B software companies
GETTY
"Made in America" is back—with a high-tech twist. Between supply-chain snarls, the pandemic’s lingering effects and growing international tensions, pundits have predicted the rise of "reshoring"—returning to domestic manufacturing—for a while. Now conditions seem ripe for talk to become action, and software is playing a pivotal role.
A November 2022 Deloitte report revealed that
62% of U.S. manufacturers have begun either reshoring or near-shoring production capacities. ("Near-shoring" refers to bringing manufacturing closer to end customer markets, for instance, to Mexico.) Deloitte predicts that reshoring will reduce China’s global trade growth from 26% to 13% in the next five years.
Census Bureau data confirm the trend: Construction of new manufacturing facilities in the U.S. "reached $108 billion in 2022...the highest annual total on record—more than was spent to build schools, healthcare centers or office buildings," according to
The Wall Street Journal (subscription required).
Multiple factors explain the reshoring trend. Covid revealed the supply chain’s fragility, and disruptions still persist. Concerns about
intellectual property theft make manufacturers hesitate to produce sensitive high-tech products overseas.
International conflicts provide sober lessons in how rapidly geopolitical shifts can strain a functioning global system.
Added to this stew is recent legislation—the
Inflation Reduction Act and the
CHIPS and Science Act, among others—requiring that all or most parts of electric vehicles, energy-efficient equipment, computer chips and defense equipment be manufactured domestically.
Indeed, reshoring is proving to be most popular with complex assembly manufacturing of high-tech goods like defense equipment
, EVs and charging stations, servers, medical devices and antennae. The “old way” required shipping parts multiple times globally before assembly could even happen.
So it makes both economic and logistical sense to bring the late assembly stage of products closer to end consumers in North America.
The net result has U.S. manufacturers of high-tech products ready to rebuild domestic factories, particularly in southern states where unionization laws favor employers and land and labor costs are lower.
The costs of manufacturing in America will likely always be higher than making products abroad, given the U.S.’s higher labor and regulatory costs. But new types of manufacturing-specific software—often dubbed “manufacturing operations management”—are making reshoring more viable for many companies today. Here are three ways software is enabling reshoring’s rise.
