The trend of relocation, or companies moving parts of their manufacturing and supply chains to different countries, has boomed over the last decade. There are many reasons to re-shore. Some companies want to avoid rules and restrictions in certain countries or shorten supply chains to limit potential disruptions. Others may be moving manufacturing due to government investment or incentives. The United States has been one of the biggest beneficiaries. In 2022, relocation and foreign direct investment jobs announced to return to the US are on track to hit a record 348,493, according to data from the Relocation Initiative. That brings the total jobs reallocated since 2010 to more than 1.6 million, according to the nonprofit, which focuses on bringing jobs and foreign investment back to the country. “The trend has been pretty fluid,” said Harry Moser, founder of the Reshoring Initiative, adding that since 2019, companies have been more motivated by fear of disruption. The trend also includes companies moving parts of their supply chains or manufacturing to different countries abroad. Much of this movement is coming from companies leaving China due to geopolitical issues such as tensions with Taiwan, tariffs, zero covid policy, and intellectual property concerns. For example, Apple plans to start manufacturing its iPhone 14 in India, ramping up production there to supplement its factories in China, according to a Bloomberg report. It is also moving production of Apple watches and Macbooks to Vietnam, according to Nikkei Asia. The trend has also brought a list of foreign direct investments to the US, for example, in 2021, Toyota announced that its last battery plant would be in North Carolina. This year, Panasonic announced that it would build its own battery plant in Kansas. What is to come Relocation seems set to continue for years to come, backed by the pandemic as well as private initiatives and laws. There is evidence that companies are not just making relocation announcements, but making investments, according to Patrick Van den Bossche, a partner at management consulting firm Kearney and author of its annual relocation report. This is a positive sign that companies are taking offshoring seriously and that the trend will continue, despite the fact that the Kearney Offshoring Index, which measures imports of manufactured goods from low-cost Asian countries vs. U.S. gross domestic product, it was negative in 2021. “I see an increase in capital gains, although it slowed down a little bit in the last two months, obviously because there are some concerns about the recession,” Van den Bossche said. noted that relocation comes up more frequently on company earnings calls, signaling a shift in importance The CHIP Act, recently signed into law by President Joe Biden, will also likely push relocation The law includes $52,000 million for American companies that produce computer chips and billions more in tax credits that encourage investment in the industry. The Trend There are a few ways to take advantage of the relocation trend as it continues to unfold. Analysts covering the space generally recommend taking stock in companies that will benefit from the trend, as opposed to companies in the process of relocating. This is because the relocation process can take years and may not show great returns to shareholders while the process is ongoing. “Overall, I think companies that benefit from trends are the best stocks,” said Chris Snyder, executive director of equity research at UBS. “There are a lot of indirect benefits.” Some industries are likely to be winners, such as manufacturing, robotics, and automation. Some of his favorite buy-qualified names include Rockwell Automation, fiber and cable manufacturer Amphenol, connector and sensor company TE Connectivity, and software testing company Keysight Technologies. Other firms are betting more specifically on industrial technology companies, distributors and component suppliers. “We estimate that relocation/close location could generate $15 billion in incremental revenue for industrial distributors over the next decade,” Baird analyst David Manthey wrote in a note on Thursday. “New domestic manufacturing sites would require significant incremental MRO [maintenance, repair and operations] supplies to operate, driving most of the upside in our view.” Baird estimates there is potential for 1% incremental revenue growth over the next decade in the industrial supply sector due to trend. Additional benefits could also be seen smaller manufacturers in construction, higher MRO prices and lower working capital, Manthey wrote. The firm said names like Fastenal, WW Grainger, MSC Industrial Direct, Applied Industrial Technologies and Wesco International should see increased volume and price of maintenance, repair and operations and industrial supplies Some companies will also see increased construction of manufacturing facilities such as Fastenal, Wesco, Ferguson, Core & Main and GMS Manufacturing is also likely a winner as are companies in the spaces automation and robotics, said Lauren Sanfilippo, investment strategist at Merrill and Bank of America Private Bank. She also pointed out that there are potential opportunities for direct overseas investment in clothing. “The story is not just about American companies, it’s about foreign multinationals coming here,” she said, pointing to Japanese robotics companies settling in the United States as an example. There may also be emerging market investment opportunities in countries where companies are moving to avoid China, such as India or Vietnam. Another group at Bank of America took a different approach to looking for companies that would benefit from relocation in May, following the war in Ukraine and risks in China and Taiwan. Its list consists of nationally-oriented companies with the highest sales growth sensitivity to US non-residential private fixed investment, according to a May note by Savita Subramanian, head of US equity and quantitative strategy. of the company. Companies with some of the most exposed are listed below.
American businesses are relocating at a rapid pace. This is how the trend is played