First there was off-shoring (moving a production to emerging markets to take advantage of low-cost labor). Then there was re-shoring (returning production as wages rise in the emerging markets). But we now we have been introduced to a new term: next-shoring.
Manufacturers have utilized both off-shoring and re-shoring in an effort to lower costs and remain competitive globally. Now to remain competitive, manufacturers are focusing on next-shoring. Next-shoring, a term developed by McKinsey & Company, emphasizes proximity to demand and innovation.
According to McKinsey & Company, next-shoring will be critical to the future of manufacturers due to the following factors:
- Local demand factors – The vast majority of manufacturing activity is located near customer demand.
- Limits of low-cost labor – Rising wage costs have not halted production in developing countries such as China.
- Low cost of energy – With the emergence of natural gas production from shale deposits, natural gas prices in the United States have dropped significantly.
- Technology – Companies will need to make significant investments in technologies such as advanced robotics and 3-D printing.
Next-shoring will be different in different locations. Companies will no longer need to just decide which regions to produce in, but how to best take advantage of each of the locations they are in.