'Near shore' manufacturing trend not necessarily good news for UK business, expert says

A recent report by the Financial Times suggested that manufacturers were cutting down on sourcing from suppliers in emerging markets - where labour costs are usually cheaper – and increasing their use of domestic suppliers.

However Jayne Hussey, a manufacturing law expert with Pinsent Masons, the law firm behind Out-Law.com, warned that companies with major customers outside the UK could be forced to relocate closer to those customers.

"We are certainly seeing a move to near-shore, which is driven by both businesses' own needs and the needs of their customers," she said. "Near-shoring can involve a supplier being required to set up a manufacturing facility close to its key customers - which may not necessarily be in the UK."

"For example, many global automotive manufacturers are requiring their suppliers to set up a manufacturing facility local to the automotive manufacturer's manufacturing facility," she said.

'Near shoring' applies where a company which has traditionally relied on an international supplier for the provision of goods or services transfers that business to suppliers in a nearby country.

Hussey said that the trend was partly to do with economic uncertainty. Recent international disasters, such as the Japanese tsunami earlier this year, were also having an effect.

Last month's Global Manufacturing Outlook survey (36-page / 2.76MB PDF) by leading economists KPMG suggested that the UK could become one of the world's top suppliers to leading global manufacturers over the next two years.

The report argued that developed markets including the US, UK and Germany would remain popular commodity sources for western companies looking to source from closer to home due to increased commodity and transport costs.

"Higher oil prices mean higher transport costs, making Western companies increasingly inclined to shorten their supply lines," the report said.

However, although the US "surprisingly" topped the report's list for expected demand in the next 12 to 24 months, it warned that a "steady shift eastward" in demand continued.

Manufacturing activity in the UK returned to "moderate" growth in September for the first time in three months, according to a monthly survey of purchasing executives at more than 600 firms.

The Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) (3-page / 85KB PDF) measures changes in activity levels across hundreds of manufacturers.