Chinese workers
China is the main country to re-shore from, according to EEF report.Reuters

An increased number of companies are re-shoring production into the UK and sourcing suppliers from within primarily due to quality concerns, according to a report.

UK-based manufacturers' organisation EEF said in a report that one in six companies have re-shored production back to the UK in the last three years, compared to one in seven companies in 2009.

Furthermore, one in six companies are turning to a UK supplier for parts and components.

While moving any manufacturing across borders is a significant decision for management, the report shows that this is not motivated solely by cost, but often to improve the quality of what is being produced and enhance customer service.
- Cipriano Beredo of Squire Sanders

The report added that this gradual trend is set to continue with 6% of companies saying they are planning to re-shore production in the next three years.

"While it will always be two-way traffic, the need to be closer to customers, to have ever greater control of quality and, the continued erosion of low labour costs in some competitor countries means that in many cases it makes increasingly sound business sense," EEF chief executive, Terry Scuoler, said in a statement.

"It is now key that government policy supports the most competitive business environment possible so that we continue to see more high value innovative manufacturers invest in and sell from the UK."

"While moving any manufacturing across borders is a significant decision for management, the report shows that this is not motivated solely by cost, but often to improve the quality of what is being produced and enhance customer service," said Cipriano Beredo, partner and global leader of law firm Squire Sanders' manufacturing industry group.

Cost Benefits and Quality Perception

Countries such as China, which were previously known for cheap labour and material costs, have benefited from a large number of manufacturing plants set by foreign companies. In addition, they have received a large amount of orders for their cheap raw materials.

Due to this cost advantage, companies in both the UK and the US went off-shore for low cost production. Those companies may no longer be reaping the same benefits, according to the report.

Re-shoring in the US has been prompted by reduced energy costs due to the boom in shale gas and the country's flexible labour market.

Meanwhile, energy and labour costs are not the primary reasons for re-shoring in the UK.

"Those factors include improved quality, shorter supply chains and greater control of brand," said Beredo.

Half of companies see quality as their main source of competitive advantage, followed by customer service and on-time delivery, according to the report. In contrast, only 17% of companies are considering cost as the key factor in business.

The report added that 84% of companies see the UK's reputation for quality as an advantage to being based here.

China is the main country to re-shore from, followed by Eastern Europe, according to the report.