Domestic Sourcing Is at Center of U.S. Manufacturing Growth

Mark Shortt

Reshoring and a variety of foreign and domestic investments are powering its rise

By sourcing parts domestically and locally, American manufacturers can reduce the costs of added time, transportation, and—in many cases—quality issues that come with importing parts and materials from overseas. Some manufacturers, however, don’t recognize these costs early enough to avoid them.

But recognition of the benefits of domestic sourcing is growing, as the number of companies bringing parts production or sourcing to the United States continues to rise. It’s even on pace to establish a new record for 2021, according to the latest data released by the Reshoring Initiative, a nonprofit organization dedicated to bringing manufacturing back to the United States. The Reshoring Initiative is actively working to bring 5 million manufacturing jobs back to the United States, according to its president, Harry Moser.

The Reshoring Initiative recently estimated that new cases of reshoring—American companies shifting manufacturing or sourcing from offshore factories to the U.S.—and foreign direct investment (FDI) in U.S. manufacturing would top 1,800 by the end of 2021, a new record.

That projection, part of the Initiative’s Data Report for the first half of 2021, was based on a scenario in which reshoring and FDI grew at the same rate in the second half of 2021 as in the first half.

Breaking that total down, the Reshoring Initiative projected that 2021 would end with 1,334 companies confirming that they reshored production or sourcing during the year. It also estimated that 510 companies based outside of the United States will have confirmed they invested directly in U.S. manufacturing operations in 2021 (foreign direct investment).

All of this reshoring and foreign direct investment is creating new jobs at an increasing rate. The Reshoring Initiative projected a total of more than 224,000 new jobs would be announced by the end of 2021. If that total is achieved, it would be 38 percent more than in 2020 and the highest number recorded to date “by far,” according to Moser. Although much work remains, the total represents significant progress toward restoring some of the manufacturing lost to offshoring over the years.

According to the report, more high- and medium-tech jobs are being created than low- and medium-low jobs. The largest percentage increase in new jobs is occurring in the computer and electronics industry, due to new investments in semiconductor chip manufacturing.

What’s driving these substantial increases in American manufacturing and sourcing?

Urgent calls to strengthen supply chains for parts that are critical to national security, economic competitiveness, and future domestic innovation are now being heard and acted upon. More companies are heeding those calls by sourcing parts domestically, a decision that shortens and simplifies their supply chains. More important, it puts production in the hands of manufacturing partners who are accountable for the quality of their work.

Domestic sourcing is being fueled by multiple factors in addition to reshoring and foreign direct investment. Also supporting it are domestic companies that are expanding their operations, building new facilities, establishing partnerships with alternate suppliers, and investing in trusted contract manufacturing firms and startups.

All of this helps to ensure a more resilient supply of parts needed by America’s critical sectors, from medical and defense to energy and automotive —an industry that’s pivoting hard to electric vehicles (EVs). As the ongoing chip shortage has made clear, semiconductors—and an entire ecosystem of manufacturing services that support their production—are vital to these sectors. They are also essential to the nation’s development of innovative technologies, including artificial intelligence (AI), quantum computing, and advanced wireless networks, among others.

While reshoring and foreign direct investment (FDI) in U.S. manufacturing are up, the construction of greenfield manufacturing facilities and the expansion of existing production facilities are making headlines in states from New York to Nevada (see the Made in America section).

One of the biggest examples of greenfield manufacturing development is Intel’s recent announcement that it plans to invest $20 billion to build two semiconductor chip factories in Ohio. In a release announcing the decision, Intel Senior Vice President of Manufacturing, Supply Chain and Operations Keyvan Esfarjani said that building this mega-site is “akin to building a small city, which brings forth a vibrant community of supporting services and suppliers.”

Intel’s chip manufacturing facilities are expected to attract numerous ecosystem partners and suppliers to the region. These companies include suppliers of semiconductor equipment, materials, and a wide range of services needed to provide local support for Intel’s operations, the company said. The impact of the chip factories will also reverberate beyond the immediate vicinity, creating demand for domestic parts suppliers that serve the semiconductor capital equipment market.

But it’s not just about chip manufacturing. Manufacturers of all stripes are building new U.S. facilities to manufacture everything from injection molded closures to fluid-management components and EV batteries. In doing so, they’re creating new opportunities for parts manufacturers and suppliers of services from machining and finishing to welding, PCB assembly, and testing, to name a few. The same is true of companies that are expanding their manufacturing operations or investing in domestic contract manufacturers and service providers.

Similarly, companies that are reshoring their parts manufacturing to America are creating economic benefits for more than their immediate suppliers. These direct suppliers have their own suppliers of parts, manufacturing services, and materials as well.

In each case, the companies that are reshoring, building new facilities, and investing in new partnerships are breathing new life into American manufacturing. They’re also building a stronger foundation for domestic sourcing, a key contributor to economic competitiveness, technology innovation, and national security.