Reshoring

Also called: Onshoring · Topic: Globalisation and MNCs · NCERT: Beyond NCERT

Meaning

Reshoring (also called onshoring) means a firm moves production or services that it had shifted abroad (offshored) back to its home country.

It matters because it reverses the old logic of globalisation, where firms made each part wherever it was cheapest. Governments now reward reshoring for security and resilience, even when making goods at home costs more.

Explanation

How it works: the reverse of offshoring

• Offshoring (the old model): an MNC (multinational company) places each stage of production in the country where it is cheapest. NCERT's example gives cost savings of about "50-60%".
• This created long global value chains (GVCs). A GVC is the chain of stages, from design to parts to assembly to sale, spread across many countries.

• Much of the world's assembly and parts-making ended up in China.

• Reshoring (the new model): the firm brings some of these stages back home.

• Firm-level: a company closes or shrinks a foreign factory and builds one at home.
• Government-level: the state pays subsidies or tax breaks to pull factories home. Example: the US CHIPS Act and the Inflation Reduction Act (2022).

Why firms and governments reshore

• Shocks showed that one cheap source is risky.
• Examples: the COVID-19 shutdowns, the Russia–Ukraine war and US–China tensions.

• One factory shutdown abroad could stop production at home.

• Security now counts, not only cost.

• Chokepoints are goods where a few countries control supply. Examples are semiconductors (chips) and critical minerals such as lithium, rare earths and cobalt.

• Governments want these made at home or by trusted partners.

• Geoeconomic fragmentation: the world economy is splitting into political blocs.

• The IMF notes that the US calls for "friend-shoring", the EU for "de-risking" and China for "self-reliance" [9].
• Since the Ukraine war began, trade in goods between a hypothetical East bloc and West bloc has grown about 4% slower than trade within each bloc [10].

The cost side: resilience is not free

• Reshoring is a move from just-in-time (JIT) to just-in-case (JIC) thinking.
• JIT: keep almost no stock and use a single cheap supplier. This is lean and cheap, but fragile.

• JIC: keep buffer stock (extra stock held in reserve) and a backup supplier, which may be at home. This is resilient, but costlier.

• Worked example (illustrative numbers):

• A phone maker spends ₹100 crore a year on parts from one cheap foreign supplier.
• It moves half the volume to a second supplier, for example a home-country plant, that costs 10% more. It also holds buffer stock that costs ₹3 crore a year.
• New cost = 50 + 55 + 3 = ₹108 crore. So resilience costs ₹8 crore (8%) more.

• Suppose a shutdown would cause a ₹40 crore loss once every 4 years. The expected loss is then about ₹10 crore a year, so the ₹8 crore "insurance" is worth paying.

• Global cost: the IMF estimates that shifting FDI patterns could cause long-term losses of about 2% of global output [8][9].

• The hidden risk: the IMF warns that reshoring or friend-shoring to existing partners often reduces diversification, which can leave countries more exposed to shocks [7].

In India

• India is mainly on the receiving end. When Western firms reshore or diversify away from China, India gains as a China+1 destination, along with Vietnam and Mexico.
• Flagship case: Apple and its contract maker Foxconn have moved iPhone assembly to India.

• The Economic Survey 2023-24 discussed GVCs moving to India under a China+1 FDI strategy [11].

• India's own "bring production home" tools:

• Make in India and PLI (Production Linked Incentive) schemes. PLI gives cash rewards linked to extra output made in India. This is India's version of the incentives behind US reshoring.

• India Semiconductor Mission, to build chip-making and chip-assembly capacity in India. Chips are a key chokepoint.

• Resilience partnerships (these add trusted partners rather than bringing everything home):

• SCRI (India–Japan–Australia), launched on 27 April 2021 [1].
• IPEF Supply Chain Agreement, signed in November 2023 [2] and in force since February 2024 [3]. India is Vice-Chair of its Supply Chain Council [4].

• India joined the Minerals Security Partnership in June 2023 [6].

• Constraints: high logistics costs, small firm size, customs duty on imported parts and skills gaps. Press Note 3 (April 2020) requires government approval for FDI from land-border countries (in effect China), even though Indian assembly still depends on Chinese parts.

Don't confuse with

• Offshoring: the opposite movement. It shifts production from the home country to a cheaper foreign country. Reshoring brings it back.
• Near-shoring: production moves to a nearby country, not the home country. Example: Mexico overtook China as the top source of US imports in 2023.
• Friend-shoring: production moves to allied or trusted countries, not home. It was popularised by Janet Yellen (2022) [7].
• Repatriation of FDI: foreign investors taking their money out of a country. This is a capital outflow, not a shift of production. India's repatriation was USD 29.3 billion in FY23 and USD 44.5 billion in FY24 [11].

Prelims Hooks

• Reshoring = Onshoring: offshored production or services brought back to the home country.
• US examples of reshoring incentives are the CHIPS Act and the Inflation Reduction Act (2022).
• Trap: moving a factory from China to Mexico is near-shoring, not reshoring. Reshoring always means home.
• The IMF (Dec 2023) links the US to friend-shoring, the EU to de-risking and China to self-reliance [9].
• The IMF warns that reshoring or friend-shoring to existing partners can reduce diversification [7]. Fragmentation of FDI could cost about 2% of global output in the long term [8][9].
• Just-in-case (buffered, resilient, costlier) is the logic behind reshoring. Just-in-time (lean, cheap, fragile) is the logic behind offshoring.

Mains Points

• Security vs efficiency (GS-III): reshoring buys resilience but gives up the cost savings that drove offshoring (NCERT: about "50-60%").
• The IMF puts the long-term global cost of fragmentation at about 2% of output [8][9].
• Reshoring to a small set of partners may even reduce diversification [7].

• India should aim at diversification, not a new single dependence.

• Opportunity for India (GS-III, industrial policy): Western reshoring and China+1 push MNCs to look for new bases.

• PLI and the Semiconductor Mission help India attract anchor firms such as Apple and Foxconn.

• Logistics costs, input tariffs, small firm scale, skills gaps and the Press Note 3 dilemma limit how much India gains. Vietnam and Mexico have captured more of the shift so far.

• Rise of protectionist industrial policy (GS-II/III): subsidy-led reshoring in rich countries, such as the CHIPS Act and IRA (2022), can pull investment away from emerging economies. India can respond through groupings such as SCRI, IPEF and MSP while keeping strategic autonomy. Staying out of the IPEF trade pillar shows this [5].

Related concepts

• Near-shoring
• Friend-shoring
• De-risking
• China plus one
• Supply chain resilience

Read more

• Rewiring supply chains: reshoring, near-/friend-shoring, de-risking and China+1