Britain | Made in Britain

Brexit triggers a round of reshoring

Firms shorten their supply chains as the divorce with Europe nears

NIMISHA RAJA didn’t pick the best date to start a business: June 2016. No sooner had the entrepreneur sold her first packet of Nim’s Fruit Crisps, a healthy snack, than Britain voted to leave the European Union, and the pound tumbled. She has been struggling ever since.

Ms Raja’s business model assumed that she would have boundless access to relatively cheap fruit in Europe, sourcing watermelons and oranges from Spain and more fruit from Italy and eastern Europe. Only the apples came from Britain. But the depreciation of the pound has contributed to a rise in her costs. A kilogram of beetroot from Poland has gone up from 20p ($0.25) per kilogram to 26p. Buying five or six tonnes at a time, says Ms Raja, the pennies add up. So she has begun buying British instead. A supplier in Yorkshire provides beetroot for 19p a kilo. Having a local supplier provides an “enormous sense of security” should supply chains be disrupted by Brexit, she says. Before, only 20% of the firm’s ingredients were sourced in Britain. Now the figure is 70%. Sometimes the switch demands creativity: Britain is not famed for its watermelons, so Ms Raja has introduced kale crisps instead.

Reshoring, the process of bringing offshore operations back home, has been advocated by some politicians and businessfolk in rich countries for years, as wages in manufacturing powerhouses such as China have risen. President Donald Trump says he wants to see more manufacturing on American soil (see article). Now uncertainty over Britain’s future trading relationship with the EU has given reshoring another boost. In a recent survey by the Chartered Institute of Procurement and Supply (CIPS) almost a third of British businesses that use EU-based suppliers said they were looking for British replacements.

Take carmaking, which employs 170,000 people directly in Britain. Multinationals such as Nissan, Honda and Jaguar Land Rover (JLR) have complex supply chains with engineering companies in the EU for most of their parts. They are now telling British industry that they want to buy much more locally, and quickly. As well as the currency and Brexit, they have another concern. To comply with any free-trade deals that Britain might negotiate with third countries, the companies will have to increase their local content in order to abide by rules of origin. Nissan, which has a giant factory in Sunderland, reportedly wants to double the share (by value) of parts made in Britain from around 40% to 80%. It is opening a new centre next to its factory that will house local manufacturers supported by the government.

Such demand is already having an effect. According to the Automotive Council, a lobby group, 44% of parts used to make British cars come from local suppliers, up from 41% two years ago. Liberty House, an engineering company, is placing some large bets on reshoring. It recently bought Britain’s last aluminium smelter, in Fort William, and is planning to build a new wheel-pressing plant next to it. At the moment Britain does not mass manufacture car wheels. Liberty’s factory will turn out 2m a year, a quarter of total demand.

In its tube-processing plant in Birmingham, the firm is investing over £500,000 in a heat-treatment machine that will double production of the safety bars that are put in the doors of Nissan’s cars. The manager of Liberty’s huge pressing plant in Coventry is hoping to get several new automated presses installed at about £7m a pop so that he can double production for JLR and Nissan in the next five years. Ministers have longed for a revival in Britain’s run-down supply chain for decades. Brexit, the government hopes, could help to start one.

Companies still have to weigh up the costs of sourcing locally. JML, a large supplier of household goods, buys about 90% of its products from abroad, mainly from China. Following the fall in the pound the company is trying to find British manufacturers that make kitchen gadgets such as spiralizers. But, argues Ken Daly, the firm’s chief executive, only companies that are highly automated will be able to compete on price with the Chinese, despite the latter’s rising labour costs. Nonetheless he hopes to increase JML’s British content to about a third. “It’s the right thing to do anyway,” argues Mr Daly, in order to help the British economy and protect the environment from container ships and long-haul flights.

British suppliers will have to shape up to meet the needs of JML and others. And there is another side of the story. In the same CIPS survey, 46% of European businesses said that they were expecting to reduce their use of British suppliers, because of Brexit. Reshoring works both ways.

This article appeared in the Britain section of the print edition under the headline "Made in Britain"

The right way to help declining places

From the October 21st 2017 edition

Discover stories from this section and more in the list of contents

Explore the edition

Discover more

The future of Drax, Britain’s largest power plant

From coal to wood to carbon capture and storage?

A new hate-crime law in Scotland causes widespread concern

Transgender identity is protected; biological sex is not


Britain’s kings of sourdough

The rapid rise of a firm that makes bread very slowly