Onshoring and ‘friendshoring’

Darren Rigden, Partner, Corporate Audit

Recently there has been an increasing trend for companies to onshore - moving as much of the businesses supply chain back to within the UK. This has been driven by a number of factors which includes:

  • Supply chain disruption and weaknesses highlighted by the pandemic
  • Higher costs, including overseas labour and freight
  • Environmental advantages such as a reduced carbon footprint
  • Heighted geopolitical pressures overseas

Although onshoring is becoming more popular it does not come without its challenges which include:

  • Sufficient UK infrastructure & logistic
  • Access to talent - Retraining or recruiting a skilled workforce
  • UK costs can be higher, especially labour costs
  • Technical feasibility/access to resources
  • Access to space and suitable premises
  • Access to materials

However, there are many advantages which need to be considered including:

  • Quality assurance and reliability of local suppliers
  • There could be fewer cultural differences in the supply chain
  • Similar time zones and quicker lead times
  • The possibility of lower customs and duty charges
  • Supporting local suppliers and businesses
  • Potentially stronger IP protection
  • No forex movements
  • Improved audit trail for the constituent materials in a product

More recently “Friendshoring” has arisen, which effectively means utilising geopolitical allies and “safer” countries to do business with. This has the advantage of retaining larger markets and access to resources whilst also reducing risk.

Whatever form of onshoring you are considering you need to plan carefully and ensure this is reflected in the company’s strategy and that the process is carefully considered and discussed with your advisors. For example, Crowe UK LLP can help to ensure that you use the correct tax structure and consider the tax implications of reshoring in all jurisdictions, help with outsourcing initially and our Global mobility teams can help you to retain key staff and bring them to the UK. It is important that you carefully cost the process and ensure that you have resources and supply chains in place to avoid any business interruptions and potential loss of customers. In particular, make sure you are aware of any customs and duty impacts, positive and negative, which could be both financial and administrative of switching locations for your key resources.

In conclusion, onshoring has a number of advantages and if done well can reduce business and supply chain risks but it will not be rights for all businesses and a half-way house such as friendshoring may be more appropriate. For more information please visit our webpage.

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Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions