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  February 3rd, 2017 | Written by

Nearshoring, Labor, and Automation

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  • Nearshoring appears to have found its footing.
  • 69 percent of manufacturing companies in North America and western Europe are considering nearshoring.
  • As companies bring manufacturing capacity back home, they often face labor shortages.

Nearshoring—in which companies move production facilities closer to their consumer markets—is a phenomenon that appears to have found its footing.

A 2016 annual survey from Alix Partners of manufacturing and distribution companies in North America and western Europe found that 69 percent say they are considering nearshoring—up from 40 percent the year before. More than two-thirds say they’ve nearshored in the past three years or plan to do so in the coming three.

One of the drivers of nearshoring is that the labor-cost advantages of relocating to China have eroded. But as companies bring manufacturing capacity back home, they often face labor shortages. Automation can provide at least a partial answer, according to the Alix Partners report.

According to the Manufacturing Institute, the US will have to fill 3.4 million manufacturing jobs by 2025 because of economic expansion and retiring baby boomers. But projections say at least two million will remain unfilled. The US is facing severe shortages in skilled tradespeople—such as electricians, welders, and pipefitters. Many holding those jobs now will retire in the next two decades, and there will not be sufficient numbers of younger people to fill the gap.

To address shortages in skilled labor, more than 60 percent of respondents say they are building relationships with local education providers, 55 percent are increasing wages to attract additional candidates, and 53 percent have internal apprenticeship programs in place. The internal apprenticeship model is particularly popular among some companies in Germany, which has a strong educational heritage of vocational training.

Skilled trade workers represent the employment category that employers are struggling the most to fill, not only in the US but also globally—and particularly in key developed markets such as the United Kingdom and Germany.

Two-thirds of respondents say they plan to invest a significant portion of their future capital in robotics and automation technologies alongside investments in production equipment and lines at existing facilities and 64 percent are out to optimize their production footprints.

According to Alix Partners, robots and automation technologies enable companies to reduce labor costs, enhance quality control, and improve throughput.Robotics costs have fallen in the past several years and capabilities have increased.

Trends point to increased automation among North American and European manufacturers for the foreseeable future. According to the International Federation of Robotics, the worldwide supply of industrial robots is projected to increase 15 percent annually through 2018 (up from 11 percent increases through most of the 2000s). The installed base worldwide by that point will have reached two million units.

Manufacturers will still have to invest in human talent if they are to make automation work. Robots need to be operated and supervised by humans and those jobs require specialized skills that manufacturers will have to develop within their workforces.