Turn on any business news channel and you’ll hear endless chatter about reshoring i.e. companies bringing manufacturing back to their home countries. Meanwhile, trade publications are full of stories about offshoring continuing to drive global manufacturing strategies. It’s enough to give you whiplash trying to work out what’s actually happening.
Having spent the better part of 25 years watching manufacturing flows shift across Southeast Asia, I can tell you the reality is far more nuanced than the headlines suggest. The question isn’t whether reshoring or offshoring is “winning”, it’s about understanding what actually makes sense for your specific situation.
Let me share what I’ve seen from the ground level, working with manufacturers who are making these decisions every day.
The Reshoring Reality Check
What is reshoring? It’s not just about moving production back to developed countries; though that does happen. More often, it’s about moving manufacturing closer to end markets, which might mean shifting from China to Mexico for US markets, or from Southeast Asia to Eastern Europe for European customers.
The drivers are real enough. During the pandemic, disruptions such as the shortage of shipping containers highlighted the vulnerability of extended supply chains. Increased labour costs in traditional low cost manufacturing countries such China drove down margins. Trade tariffs have added to this complexity.
But what does the business press often miss? Reshoring isn’t necessarily bad news for Southeast Asian manufacturing. In fact, some of the most successful “reshoring” stories I’ve witnessed have involved companies moving production from China to Thailand, Vietnam, or Malaysia, technically offshoring to a different location, but achieving many of the same benefits.
Southeast Asia’s Changing Position
The manufacturing landscape in Southeast Asia has evolved considerably over the past few years. Until quite recently, the key driver for investment was low labour costs..
Thailand developed sophisticated automotive manufacturing capabilities. Rayong province’s Eastern Seaboard Industrial Estate was known as the ‘Detroit of the East’. Malaysia has developed into a hub for high-tech assembly largely driven by Singaporean businesses. Vietnam has attracted significant foreign investment in textiles, electronics, and increasingly, more complex manufacturing processes while Cambodia remains focussed on the clothing industry.
Many Southeast Asian countries offer more than cheap labour these days. Established industrial estates, skilled workforces, and increasingly sophisticated supply chains are more common.
Decisions, Decisions, Decisions
Based on my experience working with manufacturers making these location decisions, the factors that really matter aren’t always what you’d expect.
Cost remains important, of course, but it’s the total cost of ownership rather than just labour rates. A European furniture manufacturer found that producing in Vietnam rather than their home country in Europe reduced their total costs by 30%, even after accounting for shipping, quality control, and inventory carrying costs. The savings came from materials, factory efficiency, and supply chain integration. Interestingly, productivity was higher in Vietnam than Europe.
Speed to market is important. Fast fashion retailers have found that producing in Southeast Asia can actually get products to market faster than domestic production, thanks to established supply chains and manufacturing flexibility. When you can reduce lead times from 12 weeks to 6 weeks, that’s worth significant cost premiums. However, they need to take transportation into account.
Don’t forget risk diversification.. Smart manufacturers spread their production across multiple locations rather than concentrating everything in one country. While economy of scale might look attractive, this approach provides flexibility when it comes to trade disputes, natural disasters, supply chain disruptions or any other unforeseen crisis.
Offshoring Opportunities
Offshoring to Southeast Asia makes sense for many manufacturers, but the reasons are evolving.
Take a medical device manufacturer I worked with recently. They had established offshore engineering services in Malaysia for several years. They decided to move production from Ireland to Malaysia not primarily for cost savings, but to access skilled technicians and established supply chains for electronic components as well as allow those engineers to get involved directly with the factory. The operations help available in Malaysia’s established industrial zones actually made the transition smoother than expanding domestic production would have been.
Electronics manufacturers are attracted to the region’s integrated supply chains. Having suppliers within a few hours’ drive, or within the region can make supply chian management much easier.
Companies that succeed understand they’re not just moving their production, they’re building integrated operations that can compete globally as well as giving them potential access to local markets for their products.
Where Southeast Asia Struggles
Of course, things don’t always go well. When looking at Southeast Asia as a place to make things, manufacturers need to think about real problems.
Many places still have shortcomings with their infrastructure. Major industrial centres are well-developed, but when companies move to smaller areas, they typically have to contend with less dependable utilities, transportation, and telecommunications. I’ve seen businesses not take such issues seriously and had to wait a long time to get started because of it.
The availability of skills varies greatly depending on where you are and what business you’re in. You may find highly capable personnel in established fields, but it usually takes a lot of time and money to teach and manage people to acquire new skills. This isn’t always a deal-breaker, but it has to be included into planning and finances.
Regulatory complexity may be onerous, especially for enterprises operating across various nations in the area. Individual nations have distinct rules around foreign investment, employment laws, and environmental protection. Things that work in Thailand may not work out in Vietnam, and making assumptions can be expensive.
The Successful Hybrid Approach
The most successful manufacturers I’ve worked with don’t think in terms of pure reshoring or offshoring. Instead, they develop hybrid strategies that optimise their global footprint.
Automotive components manufacturers operate a “hub and spoke” model with design and development capabilities in their home country and high-volume production in Southeast Asia and regional assembly facilities closer to key markets.
Another strategy that’s gaining traction is “nearshoring plus”. Companies maintain some production capacity close to home for quick response and customisation, while using Southeast Asian facilities for high-volume, standardised production.
What is the Right Decision?
If you’re weighing reshoring versus offshoring options, here’s what actually matters based on what I’ve seen work:
Start with an honest assessment of your cost optimisation requirements. Look at the total cost of ownership, not just production costs. Include logistics, inventory carrying costs, quality control, and management overhead in your calculations.
The reshoring versus offshoring debate frequently misses the point. The real question is how to structure your global manufacturing footprint to best serve your customers while managing costs and risks effectively.
Southeast Asia remains an excellent location for many types of manufacturing. Success requires a deep understanding the region’s evolving capabilities rather than relying on outdated assumptions about low-cost production.
Feel free to contact me at noah@shepherd-partnership.com if you have any questions.