X-Shoring and the Rebalancing of Global Supply Chains

By:

Gregory Collins 雷轲林
Assistant Teaching Professor
W.P. Carey Supply Chain Management
Arizona State University

Adegoke Oke
Professor & Harold E. Fearon Fellow
W.P. Carey Supply Chain Management
Arizona State University

Onshoring, reshoring, nearshoring, friend-shoring, rightshoring, China +1. So many terms that seem like buzzwords in recent media and political discourse, but nonetheless are now central discussions in boardrooms and executive suites. X-shoring, as we will refer to these terms collectively, has played a role in cross-border supply chain strategies for decades. The devastating COVID-related supply chain disruptions, converging with developing geopolitical realities, have brought the risks of a globalized supply chain to the fore and accelerated the urgency to mitigate. The limits of the predominant global supply chain designs that have defined many industries since the 1990s have revealed seemingly urgent cracks in the dam that may need more than cement to repair. And the headwinds have continued throughout 2023. With a war in Ukraine, a strong U.S. dollar, and the highest global inflation rates seen in a generation, Larry Fink, the influential CEO of Blackrock, projected in March 2022 that the world had reached the “end of globalization.”

30 years of global trade expansion.

The United Nations Conference on Trade and Development Report of 2022 estimates that global trade reached a record high in 2022 of $32 trillion, compared to just $800 billion in 1980. The decades-long growth in trade strongly correlates with the growth and ever-increasing scale of global, high-volume manufacturing through outsourcing and offshoring. In the 1980s, powerful new management concepts, such as Michael Porter’s focus on core competency and production methods like Toyota’s lean manufacturing, highly influenced a new generation of business leaders. Together with a global business environment of post-Cold War stability and low ocean freight and fuel costs, a global fabric was formed upon which the manufacturing models of lowest-cost labor and economies of scale could be aggressively pursued overseas. While not alone as an outsourcing and offshoring destination, China opened the door in the 1980s with low-cost and seemingly unlimited labor, attractive tax schemes, and lax environmental regulation. The tradeoffs of potential disruptions and long ocean shipping lanes seemed only minimally risky. It was a good bet, and for 30 years global trade expanded. But the world is now changing.

How should a new global supply chain be restructured?

The questions are many. How should a new global supply chain be restructured? Does nearshoring, for example, necessitate the redevelopment or transfer of the entire supply chain closer to key end markets? To how many end markets? Have the classic drivers and business priorities of supply chain efficiency — cost, economies of scale, JIT, labor flexibility, logistics consolidation — become obsolete so quickly? Given so much data and many agendas, how does a firm even plan or execute any of these X-shoring strategies? Collectively, these questions are discussions with many dimensions and business implications: security, risk, cost, time-to-market, inventory, COGS, logistics, quality, and customer responsiveness.

How to plan and execute an X-shoring initiative.

In this white paper, we will address the rich dimensionality of X-shoring and why it matters in today’s global supply chain, namely the drivers, business models, processes involved, barriers, and success factors of undertaking an effort to re-design or disaggregate product manufacturing in a global supply chain.
We will also address one of the primary issues companies are facing, of which there is little presented in the literature, specifically: how to plan and execute an X-shoring initiative. This paper is based on our research, interviews we have conducted with supply chain and purchasing executives, experienced operational practitioners, as well as our own professional experience leading global supply chain transformations and cross-border transfers.

The objectives of this paper are as follows.

• To frame the business context of current global supply chain structures.
• To clarify and differentiate the various strategies of X-shoring and their business and structural tradeoffs.
• To discuss the business drivers of X-shoring, that is to say the strategic and business priorities that guide key decisions required from supply chain leaders.
• To identify the barriers, best practices, success factors, and a methodology for enabling X-shoring.
• To discuss potential future risks and opportunities of X-shoring.

To access the full research report, X-Shoring and the Rebalancing of Global Supply Chains click here.

CAPS is a B2B nonprofit research center serving supply management leaders at Fortune 1000 companies. CAPS Research inspires leaders with profound discovery and executable strategies to shape the future of supply management. Research reveals the destination, benchmarking charts the course, and networking creates the path to transformation. All CAPS offerings are sales-free, bias-free, and practitioner-driven. CAPS was established in 1986 at the W. P. Carey School of Business at Arizona State University in partnership with the Institute for Supply Management. Learn more at www.CAPSResearch.org.

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