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Examining Reshoring and Nearshoring Trends

The offshoring trend dates back to over 50 years ago and was primarily started with companies outsourcing manufacturing jobs overseas in order to significantly cut the costs of manufacturing. While many large manufacturers have experienced tremendous success with offshoring, the rising costs, global conflicts, and significant supply chain interruptions that manufacturers have experienced in the past few years have led many to begin talking about “reshoring” or bringing those outsourced jobs back to the United States.

The United States has been a significant beneficiary of the reshoring movement. The Reshoring Initiative published their 2022 Data Report, which cited that reshoring has contributed 1.6 million jobs to the U.S. economy since 2010. Of the 1.6 million jobs, nearly half represent manufacturing jobs that had previously been done in China. The report noted reshoring and foreign direct investment added 360,000 manufacturing jobs in 2022 alone, a 53% increase from 2021. A significant portion of this is due to the CHIPS and EV incentive programs offered by the U.S. government starting in August 2022.

Despite these positive trends, there is growing concern over the impact of reshoring on the already-disconcerting manufacturing labor market. Attracting and retaining employees has been a top issue facing manufacturers for several years. A Q4 2022 Kearney Consulting survey found that on average it takes manufacturers 1-3 months to find suitable workers for even basic tasks. Compounding the problem is the skill gap required to fill manufacturing jobs as technology continues to advance. Deloitte noted that if unchanged the current skill composition of the market could leave up to 2.1 million jobs unfilled by 2030. Reshoring will compound the problem and leave manufacturers fighting even harder over the same limited employee pool.

These concerns have caused executives to consider alternatives to reshoring in the form of “nearshoring.” Oxford defines nearshoring as “the practice of transferring a business operation to a nearby country, especially in preference to a more distant one.” Kearney, a Global Management Consulting Firm, researched the trend of reshoring and nearshoring. In their article “America is ready for reshoring. Are you?” the report noted American imports from Mexico grew 26% since the pandemic. The study analyzed U.S. gross output compared to low-cost countries (referred to as LCCs which include China Vietnam, Philippines, Malaysia, Indonesia, Pakistan, Sri Lanka, Taiwan, Thailand, Bangladesh, India, Singapore, Hong Kong, and Cambodia) and Mexico manufacturing imports, and it was noted based on 2013 indexed imports that Mexico outpaced LCC manufacturers over a 9-year period. Manufacturing growth in Mexico has been seen across the world as U.S., Europe, and Chinese companies increase their focus on growing operations in the country. Industry leaders such as Tesla, Mattel, and Hasbro have increased their presence in the country over the past two years.

While interest is growing in Mexico, there has been a steady decline in Chinese manufacturing. In 2018 China represented roughly 65.6% of LCCs manufactured goods to the U.S. This number has steadily declined down to 50.7% in 2022. A loss of approximately $18 billion in absolute import value. The decline in Chinese manufacturing is offset by growth seen in Vietnam (5.3%) and Taiwan (3.5%) over that same time.

The global pandemic shined a light on the risks associated with offshoring, especially once manufacturers understood the dramatic impact it had on the supply chain. Companies are forced to take another look at their global operations and determine how they can best mitigate supply chain disruptions while simultaneously keeping costs down. Only time will tell whether a slowdown in globalization (referred to as “slowbalization”) is here for good, but it certainly seems as though the renewed trends of reshoring or nearshoring are not going away anytime soon.

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About the Author

Dan Dorgan

Dan joined McKonly & Asbury in 2018 and is currently a Manager with the firm. He is a member of the firm’s Audit & Assurance Segment, primarily working with clients in the manufacturing and construction industries. Dan also perfor… Read more

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