Reshoring and nearshoring are making headlines after the limits of a long and strong wave of offshoring – which has seen manufacturers move their factories abroad, often to lower-cost countries, such as China – continue to emerge, especially in the fashion industry. These include hidden costs in logistics, quality and in coordination, as well as counterfeiting, negative impacts on the environment, and poor working conditions. Trends are also changing more rapidly, making long supply chains problematic. The fashion industry is an interesting case as it is labor-intensive – particularly when it comes to stitching, which has not yet been automated – and most of its occupants have off-shored substantially to lower their costs and boost margins. Yet, it is also an industry where clusters exist and flourish – whether it be Italian cities of Prato and Florence or the garment centers in London and Paris.
A study from Boston Consulting Group shows a reduction in the gap between labor costs in China and in the United States because of an increase in Chinese labor costs and rising productivity in the United States. This, therefore, suggests in numerous industries, there may be a wave of reshoring – bringing manufacturing back after it was offshored. Reshoring is also becoming a buzzword in Europe, and the benefits of manufacturing for European countries are clear. (These trends are being accelerated, as COVID-19 and subsequent supply shortages have shed light on the fragility of global supply chains.)
While offshoring can cut some costs, it has been shown to reduce firms’ capacity for innovation. Gary P. Pisano and Willy C. Shih, who are researchers from MIT, for instance, have proposed a framework that allows industries to be classified based on their innovation type – pure product innovation, pure process innovation, process-embedded innovation, and process-driven innovation. Fashion is considered a process-embedded innovation industry, which means that design and manufacturing have to be co-located for firms to sustain their capacity to innovate. As a consequence, the recommendation from Pisano and Shih is to co-locate the two activities in the country of origin, and innovation is presented as an additional argument in favor of reshoring.
Digitization, automation and the industry 4.0 technologies are also presented as changing the manufacturing landscape in fashion, encouraging closer manufacturing locations.
Not Reshoring, but omnishoring
An in-depth analysis of 20 European fashion companies (realized by Celine Abecassis-Moedas and Valerie Moatti within the ESCP Europe Lectra “Fashion and Technology” Chair) shows a more complex picture. First, European firms perceive sourcing countries differently depending on whether they are distant (i.e., located in Asia) or located closer to home (such as in Europe, Turkey or North Africa), rather than in accordance with the usual dichotomy of local versus distant sourcing. Manufacturing in a company’s home country is virtually non-existent; one of the fashion companies examined reshored from far-sourcing countries to its home country, while quite a few shifted manufacturing back to places that are closer to it – i.e., nearshoring. The majority of firms, however, are manufacturing more than half of their volumes in close-sourcing destinations, and “finishing” those products in their home country in order to benefit from loopholes in national labeling laws.
All of the firms examined manage a complex portfolio of sourcing locations, which see them either allocating certain products to particular locations (jeans are made in Turkey, for instance) or allocating the same products to different sourcing locations depending on the product life cycle – close in smaller series at the beginning of the season, then distant in large quantities, and again close for replenishment at the end of the season. This is what we call “omnishoring” – or a portfolio of multiple sourcing locations (close and far) that depends on the specific products and their degree of innovation, and that serves to complement the whole.
Strategies to coordinate & manage distance
The need to coordinate design and manufacturing when these operations are not co-located is essential, and firms use a variety of strategies that go beyond co-location in the home country. Some have developed a reverse co-location system, in which they move design close to manufacturing, rather than the other way around. For example, some large players in the European fashion industry have moved (part or all of) their design department to Hong Kong or China. Another coordination mechanism is to physically situate prototyping operations – i.e., an early step of manufacturing that is considered to be critical for the innovation process – close to design, and then allow the rest of the manufacturing phases to be carried out in a more distant locale.
Alternatively, some firms manufacture in distant countries that have some cultural proximity – for example, British firms can choose Thailand because of a greater level of English fluency. Others manufacture in distant locations in their own facilities or through strong partnerships, which allows for greater control and stronger coordination. Finally, the use of manufacturing and communication technologies (PLM, 3D design, etc.), intermediaries, and/or regular and systematic trips of designers to manufacturing plants is also a strong coordination mechanism.
Ultimately, our analysis shows a more dynamic approach to what distance is, one that goes beyond its purely geographical dimension, and how it is managed. Four strategies to manage distance between design and manufacturing emerged: (1) Avoiding distance by co-location or reverse co-location; (2) segmenting geographical distance, by segmenting manufacturing between prototyping and product development, and bulk manufacturing; (3) hedging against geographical distance through other forms of proximity, such as cultural or institutional proximity (manufacturing in distant locations in a firm’s own facilities); and (4) managing geographical distance through the use of technology.
The term omnishoring reveals a rich portfolio of sourcing destinations (both close and far) and of institutional models (a firm’s own facilities and contracted ones) that allows firms to manage different products, seasons, series, and more. This study of the fashion industry shows that the need for co-location between design and manufacturing can be managed in different ways. These strategies are also food for thought for other industries that want to manufacture outside of their home country without sacrificing innovation.
Céline Abecassis-Moedas is an affiliate professor at ESCP Europe and Universidade Católica Portuguesa. Valérie Moatti is the Professor Lectra Fashion and Technology Chair at ESCP Business School.
This article was initially published on November 28, 2018, and has been republished in light of recent shifts within the supply chains in the fashion industry – including efforts by the likes of Calvin Klein and Tommy Hilfiger-owner PVH to move manufacturing operations closer to home – much of which has been prompted by the onset and enduring impact of the COVID-19 pandemic, and subsequent supply chain shortages.