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What is reshoring? Explanation of investment

INVESTMENT EXPLANATORY: What you need to know about reshoring – when companies bring production back to their home country

In this series, we break down the jargon and explain a popular investment term or topic. This is the reinforcement.

What is this?

Basically the opposite of “offshorization”. It is the process by which a business returns to its own country products that were previously transferred to another.

Offshoring, especially to Asia, has been extremely popular in the era of globalization because of the huge savings, especially in labor costs.

You’ll hear reshoring also referred to as “backshoring,” “inshoring,” “narshoring,” or “onshoring.” It’s confusing that people are starting to use reshoring to mean moving production to a lower cost country than China.

It’s good to be back: Reshoring is the process by which a business returns to its own country products that were previously outsourced to another

Why do I care?

According to analyst Sentieo, reshoring (or any of its synonyms) is being mentioned the highest number since 2005 during investor briefings or company results meetings. This is the result of the combined impact of Brexit, the pandemic, the war in Ukraine and last year’s blockade of the Suez Canal, which have disrupted or completely disrupted the supply chain.

This combination has had a disastrous effect on the budgets of some companies. Costs increased and production had to be stopped at times.

Have a special problem?

Microchips are essential for cars, household gadgets, fighter jets, mobile phones and much more.

At the center of this angst is Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for 51 percent of the global chip market. Taiwanese manufacturers produce 90% of the most high-tech chips.

Such is TSMC’s importance that its chairman, Mark Liu, has said the world would become “unusable” if Taiwan were invaded by China, which views the country as a breakaway province.

He made the comment during a visit this week by Nancy Pelosi, the speaker of the US House of Representatives, to Taiwan, when she met with TSMC executives.

How did it happen?

In 1990, America had a 37 percent share of the global chip manufacturing market. But thanks to a policy of offshoring chip production as a cost-saving measure, the US now controls only 12 percent, which is why it’s so heavily involved in the transformation.

New chip factories are popping up in Phoenix, Arizona. They are created by Intel, an American giant, and TSMC.

The new Chips and Science Act will provide $52bn (£43bn) in funding for the initiative, but there are fears it could only add 6 per cent of additional capacity over the next few years, while China could increase its production by around 40 percent. cent

What’s happening in Britain?

Gigafactories for the production of lithium-ion batteries and electrolyzers for green hydrogen are being built.

After an Office for National Statistics report published in the spring that revealed the chaos caused by supply chain problems, more and more British companies have said they want to branch out to new shores.

Trade group Make UK says three quarters of companies have increased their use of British suppliers and that half will continue to do so.

Investments in technology, including robotics, should make it easier to compete with the Far East on costs.

More ‘Made in Britain’ products on the way!

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What is reshoring? Explanation of investment

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