Until recently, companies from across industries would seek out manufacturing possibilities in faraway locations – taking advantage of cheaper labor, cheaper rents, and lighter regulations. However, according to leading companies in the Multi-Industry sector, the tide is beginning to turn to reshoring, bringing back manufacturing operations to the US.
Spurred on by pandemic-induced supply chain issues, alongside macroeconomic challenges, companies are increasingly looking to reshore manufacturing activities to the US. After a decade of global supply chain buildouts, manufacturers have found themselves exposed to unforeseen vulnerabilities. Returning production to inside the US could help secure supply chains, shorten transportation times, and build buffer inventories, as ‘just in time’ inventory metrics have rapidly given way to notions of ‘just in case’.
As a result, a number of potential investment opportunities have arisen. While long-term investment themes, including electrification and the energy transition, remain important, nearer-term industry trends might prove equally as significant for manufacturing investors.
Reshoring and the big reimagining
Reshoring new manufacturing facilities is set to reimagine whole regions of the US, opening up a range of investment opportunities in infrastructure and equipment across multiple industry sectors.
83% of manufacturers surveyed in the 2021 State of North America Manufacturing Report noted that they are likely to reshore their production lines. As more and more companies begin to bring their industries home, new factory hubs, manufacturing zones, and subsequent residential construction sites are likely to be in high demand. Migrating workers to newly created factory-led communities could spur increased investments in housing and construction. Meanwhile, nearshoring in nearby Mexico could also increase investment in warehouse distribution centers, particularly due to the overwhelmingly road-based supply routes between the two nations.
Pharma’s coming home
COVID-19 exposed vulnerabilities in the US pharmaceutical and medical supply chains, spurring the US government to encourage the return of pharma-manufacturing to US shores. High manufacturing costs, regulatory hurdles, and low proximity to key raw materials all played a key role in the offshoring of pharmaceutical manufacturing in the past. However, programs such as the American Jobs Plan (AJP) – a key part of the Build Back Better Plan – have been introduced in an attempt to retool and revitalize manufacturers. With $130bn set aside to strengthen supply chains and incentivize reshoring, companies exposed to pharma or medical supply manufacturing could see tailwinds as a result1.
Successful companies in this space may also be looking to embrace advanced manufacturing techniques to help improve cost economics after reshoring. Continuous manufacturing is likely to be an important initial process alteration for many pharma manufacturers looking to drive profitability. This will involve producing drugs in a single facility, as opposed to large scale batch manufacturing, which is typically slower and takes place in multiple locations. Benefits include improved quality, lower cost, and the ability to respond quickly to drug shortages.
A world built on microchips
The semiconductor industry makes integral components for technologies relied upon worldwide, and the importance of these chips to society is only growing. The global semiconductor industry is set to become worth a trillion dollars by 2030, and currently the US leads in the design stage, with over 60% market share2.
However, pure-play foundry and assembly, testing and packaging stages are currently dominated by Asian players. As a result, both legislative incentives such as the CHIPS and Science Act of 2022, and the overall complexity of the semiconductor supply chain, are likely to drive the reshoring of front-end manufacturing (i.e., integrated device manufacturing and pure-play foundry) and back-end processes (i.e., assembly, testing, and services).
Investors in this space are likely to be drawn towards the construction of fabrication plants and the associated automation investment required. AI developments are expected to spur interest in semiconductor manufacturing, by improving efficiency and tackling the high cost of production associated with manufacturing in the US – a key hurdle to reshoring. Semiconductor manufacturers have pledged to invest around $200 billion into building new fabrication facilities in the US, following the CHIPS Act3.
Making ultrapure water
And finally, another significant takeaway from Multi-Industry manufacturing is the increasing demand for the supply of ultrapure water. The manufacturing of both pharmaceuticals and semiconductors relies on the supply of large quantities of ultrapure water – and there is potential for rewarding investments into clean water systems, and water treatment technology, as a result.
This is particularly compounded by the growing pressure on manufacturers to improve their approach to recycling, reducing, and reusing water – alongside many of the plans for the reshoring of semiconductor fab facilities intended for the already water-stressed southwest.
Deane Dray authored “Multi-Industry Investment Implications of Manufacturing Reshoring,” published on June 1, 2023. For more information about the full report, please contact your RBC representative
1 ‘RBC Imagine: Multi-Industry Investment Implications of Manufacturing Reshoring’, p.9, RBC Capital Markets, 2023.
2 ‘The semiconductor decade: A trillion-dollar industry’, McKinsey & Company, 2022. https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry
3 ‘RBC Imagine: Multi-Industry Investment Implications of Manufacturing Reshoring’, p.7, RBC Capital Markets, 2023.
