Homeward bound
12 Feb 2014
If, like me, you watched this weekend’s episode of the BBC show Top Gear, you would have seen their report on the massive operation under way to bring back huge numbers of British military vehicles from Afghanistan as the army continues to scale down its presence in the country.
British soldiers and military vehicles aren’t the only ones heading home: government departments including UK Trade and Investment (UKTI) and the Manufacturing Advisory Services (MAS) are reporting a significant rise in the number of companies seeking to “reshore” – that is, return production lines to the UK from overseas.
The two aforementioned bodies have even joined forces to create a service called Reshore UK to help companies looking to reshore.
The two key factors driving this phenomenon are quality and cost
Over the past week I have been speaking to some of those working with companies that are in the process of reshoring or considering such a move, and there is a consensus that the two key factors driving this phenomenon are quality and cost.
Many firms are finding that production costs in Asia are rising and, while not yet comparable with UK levels, they are getting to the level that the price difference can be negligible once additional costs such as duties and the cost of landing the product in markets closer to home are factored in.
When weighing up that small financial difference with the benefit of having greater control over the quality of their product when it is based close to company headquarters, it is unsurprising increasing numbers of firms are choosing to bring some production back home (there are very few that are reshoring their entire production lines, as there are some areas, such as electronics, where the skill levels in Asia are far greater than in the UK).
The most high profile example of a company reshoring has come on the discrete manufacturing side: after having to recall 17,590 cars due to a faulty accelerator pedal arm made by a Chinese supplier, Aston Martin has returned production of the subcomponent to the UK.
However, there are also process manufacturing firms looking to re-establish and strengthen their UK production bases, particularly in the pharmaceutical sector. These firms have been encouraged to invest in the UK due to all of the concerns mentioned above, but also thanks to legislation such as the Patent Box, introduced by the previous UK government and implemented in April 2013, which lowers the corporation tax on UK or European patents.
While some processing capacity, such as oil refining and the production of certain chemicals, seems to be inexorably heading overseas, it is a welcome relief to know it’s not all one-way traffic.
