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Offshoring, Onshoring, and Near-Sourcing: Western Markets Scale Back in China

After China joined the World Trade Organization in 2001, foreign companies clamored to outsource production and labor to Chinese factories, and the nation’s manufacturing industry surged. Now, a trend toward “onshoring” indicates that the surge has subsided, but experts predict that China will remain a key player in foreign production–at least for now.

The practice of onshore manufacturing, or onshoring–as opposed to offshoring–has been gaining traction in both U.S. and European markets, encouraged by skyrocketing Chinese wages (they’ve increased 500% since 2000) and oil prices, the inefficiency of long-distance shipping, and concerns about worker conditions in Chinese factories.

A scale-back in China doesn’t necessarily mean an increase in domestic jobs. Many U.S. companies will expand production in Latin America, which boasts both cheap labor and market proximity.

At the Sea Asia conference in Singapore, Kenneth Glenn of APL told shipping execs that “manufacturing in Latin America for North America and some domestic markets is clearly on the rise.” In Europe, he added, near-sourcing in the Middle-East will continue to grow.

But despite its lack of proximity, China’s long experience with high-volume production gives it an advantage over countries fresher to the game.

“There is a supply chain infrastructure in China which is not easily replicated,” Andy Tung Lieh-cheung, of Orient Overseas Container Line, told shipping execs at the Sea Asia conference in Singapore. Onshoring, he concluded, “is a bit overhyped.”

Still, Chinese exporters are well-advised to look beyond Western markets. Teo Siong Seng, the managing director of Pacific International Lines, said that China should continue to invest in trade with Africa and with other Asian countries, noting that intra-Asia container traffic has already grown beyond transpacific exports. Teo predicted that by 2030, trade within Asia and to the Middle East will have multiplied by six.