To offshore or not to offshore? That is the question

Some motor industry firms are scaling back offshore production, but 'onshoring' may not have the last laugh

Share
Related Topics

Bring it back! One of the brightest stars in the UK economic firmament this year has been the strength of the motor industry. Car sales have been extremely strong, up 12 per cent last month, the only major market in Europe that is up this year. But production has also been strong, almost eliminating the gap in trade in motor vehicles that has persisted for a generation. We still import more cars than we export, but we tend to export expensive models and import cheaper ones.

We do, however, need to import a high proportion of components from abroad to make these cars, and there is now a drive to boost local component production, to bring it back onshore. That is part of a much wider change described by the ugly word “onshoring”, the reverse of the offshoring that has swept through much of industry in the West, in services as well as manufacturing. It is a word new enough for its definition not to have settled down yet, but it is one we are going hear much more of in the months to come.

Examples abound. In the service industries one of the most notable examples of onshoring was Santander moving its call centres back from India to the UK. In the US Wal-Mart has pledged to buy an additional $50bn of US-made goods over the next decade – though relative to the size of its sales of nearly $500 billion a year that is quite small.

In garment manufacturing, the best European example of keeping production here is Zara, the Spanish-owned fashion chain. It produces some 10,000 new designs a year. But the thing about fashion is that you don’t know which lines will be winners until they walk off the racks. So instead of having to cope with the long shipping times for goods made in Asia, much of production is in automated factories in Spain. Goods that are selling fast are then finished in small workshops in Portugal and Galicia, stuck on lorries, and are in the shops in northern Europe in 48 hours.

As with all new economic trends, you have to be cautious about the scale of what is happening. In Britain the evidence of onshoring is still bitty. There is a nice story about Symington’s, a Leeds food company, moving its noodle production back from Guangzhou to Yorkshire. In Wales, the production of the Raspberry Pi computer is being moved back from China to Pencoed. There are examples of production not being moved overseas because the cost advantage is minimal when set against the advantage of being close to markets, a case here being the production of titanium dioxide at the giant Huntsman plant on Tyneside. Apparently they thought of moving production to China until they realised that labour costs, which of course were higher here, were only a small part of the total costs.

Against this, though, there are still examples of manufacturing jobs moving offshore. Earlier this year Caterpillar announced that it was creating 200 new service jobs in Belfast, which sounds fine until you note that it cut 760 jobs in Northern Ireland a few months earlier, moving generator production to China.

Still, if you net the losses against the gains, US manufacturing jobs have been rising since 2010 and manufacturing jobs here have at least stopped falling, levelling out at about 2.5 million, against some 4.2 million in the late 1990s. As wages increase in the emerging markets – and it is projected that manufacturing wages in Shanghai, the highest in China, will pass those in the US within five years – the cost advantage will disappear. Offshoring will continue, but increasingly the process will not be a one-way street.

How to value Royal Mail?

Has Royal Mail been sold too cheap? Probably, but the problem with any share float is that you don’t know what something is worth until you test it. There are three main uncertainties. One is the market. If there were something akin to Lehman Brothers’ collapse, all share prices would collapse too. The second is fashion. Facebook was a highly fashionable investment proposition, so much so that it was initially overpriced. This one seems to have caught the public mood, but it might not have done. And the third is the difficulty of benchmarking a company. There are other mail services, but their balance of business and prospects are all different. 

So what do you do? You either sell off shares in small tranches, as we have with Lloyds Bank, and spread the risk. (Actually Lloyds shares are now below that issue price.) Or you can do what they have done and accept that investors may get a sudden profit.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Research Manager - Quantitative/Qualitative

£32000 - £42000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Day In a Page

Read Next
Piper Ryan Randall leads a pro-Scottish independence rally in the suburbs of Edinburgh  

i Editor's Letter: Britain survives, but change is afoot

Oliver Duff Oliver Duff
Some believe that David Cameron is to blame for allowing Alex Salmond a referendum  

Scottish referendum: So how about the English now being given a chance to split from England?

Mark Steel
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam