Many large American companies faced financial pressures or distress. One major camera and photography equipment/supplies manufacturer we speak to now looks to continue to pare down its operations and personnel, rather than to launch new units that reshoring would pose. If anything, they continue to become more dependent on the competence of their supply chain where reliance on outside, independent vendors and producers increased. Import/export trade credit is a method to finance the ability of these engaged vendors to produce goods, inventory and material, in a way compatible with the needs of the camera company. Over the past several years and for the foreseeable future, banks and their regulators implemented harsh credit policies. They typically will not finance these transactions for an unexceptional entity with a questionable credit score, where the receivable representing a sizable amount of income for the small business owner must be collected and made whole in another country.
Also, consider how many American companies perceived as manufactured brands are merely licensing and branding entities—which are very much tied into contracted-out vendor, supplier import relationships. Or, if a company that requires a manufacturing component is relatively young without a track record, many banks will not provide financing for plant and equipment. These start-ups gravitate to sources in China, Southeast Asia, India, Pakistan and the like as their business solution.
In another case, we work with several equity owners who recently launched a company in computer components. Each of these partners has an extensive background in which they worked for mega computer companies. Through their credentials and past contacts, they began to sell products to their former employers. Despite the promise of this enterprise, banks will not finance them at this stage. And they have not been able to attract a level of investment and capital that will allow them to install a manufacturing facility. Contract manufacturing according to their specifications enabled this company to transact deals and realize growth. Sound familiar?
Balance your risks and benefits
An argument often cited to consider reshoring is the expense of shipping, trade duties, customs and logistics, which goes with importing and offshoring. In my import/export trade credit transactions, I must recognize considerable improvements, especially after 2001 where efficiency and technology in shipping advanced through software packages like the global supplier customs and manufacturers database. Freight forward shipping companies became one-stop, tight operation, comprehensive service providers. And many nations streamlined their customs/duties protocols because they understand that inferiority here can negatively impact their economies.
This commerce is very different from large companies such as Apple, Motorola or Caterpillar—where innovation is a driver. Here, product development is potentially difficult overseas and reshoring may be the best approach. When this prototype reaches a point of maturity and definition, overseas manufacturing can often become more cost effective at this stage.
Long term, perhaps there will be some increase in reshoring by American companies. Will this scenario be carried out in five years? Ten years? I don’t see certainties on reshoring overtaking offshoring anytime soon.