Reshoring Could Reshape South Florida Manufacturing

A surge in offshoring since the 1960s had American companies confident they could cut labor costs by turning to nations like India, China, Malaysia, Pakistan and Vietnam for their manufacturing needs.

For over 50 years, offshoring was the solution, and for good reason. Billions of dollars were saved, and companies faced fewer issues related to labor and other ongoing costs.

Then, the pandemic hit. Costs and security issues began to rise and confidence in offshore manufacturing partners dropped, atop logistical and supply chain issues that revealed problems with relying on overseas providers for a host of products that arguably could be produced at home. High interest rates are cutting into potential savings. Even politics and border-related issues became problematic. Ultimately, labor arbitrage alone wasn’t a sufficient argument in keeping manufacturing abroad.

Companies today are taking another look at bringing their manufacturing closer to home. 

In a recent private panel discussion hosted by First American Bank and held at the offices of the South Florida Business Journal, leaders from the banking, logistics, accounting, technology, manufacturing and educational sectors explored the impact of reshoring American manufacturing. They explored how lower logistics costs; the open market economy, economic stability, and reduced political risk and the security of the legal system; access to capital markets; a growing technology sector; and a consistent flow of skilled labor created in part through partnerships with our colleges and universities provide create fertile grounds for manufacturers.

What was clear is that for these and other reasons, some manufacturers are pressing pause on offshoring and encouraging a deeper look closer to home, said Brian Hagan, Florida Market President with First American Bank.

“It’s not just labor costs,” he said. “We can do some things that are really important to create value.”

Florida stands to gain significantly from any move to reshore manufacturing, said Matthew Rocco, President of the South Florida Manufacturer’s Association. South Florida has 8,000 manufacturers, and Miami-Dade County manufacturers employ some 42,000 workers, the most in the state, and a figure that grew 8% in the past four years, he said.

“During the pandemic, Florida didn’t realize what’s in our backyard,” he said. “Reshoring is something that’s on the minds of the industry. Covid opened their eyes. Reshoring is happening.”

Bringing manufacturing home

Potential manufacturers and their customers face some challenges, he admitted. While the region has a robust labor pool, potential employees will need to be trained or upskilled. Real estate, already at a premium, is only getting more costly, as are insurance costs, Rocco said. Automation could impact the majority of current manufacturers who employ fewer than 50 workers. The transformation could be in the billions of dollars.

“The costs are high. We have to change the mindset,” he said. “It takes a whole community [to understand how to bring manufacturing home]. Once understood, it could be easy.”

A host of industries use offshoring and “nearshoring” today, said Gary Goldfarb, Chief Strategy Officer with Interport Logistics. From traditional offshoring partners, markets closer to home began opening, such as Mexico, El Salvador and Colombia. Covid revealed the benefits of working closer to home. Some companies moved pharmaceutical manufacturing to Brazil, even Mexico, which has seen double-digit percentage increases.

Compare onshoring to the costly delays of offshoring and the numbers add up. “If you can manufacture here, why deal with that other culture, if you’re 45-50 days in transit,” Goldfarb said. “If you partner with universities to manufacture with them, costs of real estate, labor and startup are lower.”

Create local, save time

At Captiva Containers in Miami Gardens, investments in technology and digital printing reduces production to three days, versus weeks for a product created overseas, said Fred Morgenstern, the company’s founder and CEO. Resources abound. Engineers from FIU, for example, performed an energy survey of his plant. Turning to such partners maximizes the value IT can bring, which can help deliver a better product.

Digital and 3D printing for many is still in its infancy, Morgenstern admitted. The volumes for 3D printing aren’t there yet, leaving its real value to be found in developing product prototypes. The challenge is bridging prototyping to actual capacity to meet market needs.

A more fundamental challenge is changing the mindset of the region’s and state’s capabilities and how the regional manufacturing sector has evolved, said Rodrick Miller, President and CEO of the Miami-Dade Beacon Council. Before the pandemic, cost was the core underlying issue. With and since then, those turning to manufacturing realize cost isn’t the most important factor. Safety, quality, time and controlling the value chain rose in prominence.

Recognizing and addressing those present opportunities and challenges. The Beacon Council is working with area universities to inventory the area’s manufacturing capacity and ability to innovatively collaborate with potential customers. The challenge is to scale the region’s capacity to meet those needs, an effort that might require public investment to bolster the sector, he said.

Hagan mentioned the need to address national security concerns related to how or where critical products are sourced. Countless health care providers suffered shortages of critical medical supplies and personal protective equipment. Other products that were less affected by supply chain issues were older or legacy products that were dependent on offshore manufacturing, as opposed to newer, more innovative products often manufactured domestically, said Luis Arguello Jr., President, DemeTech Corporation. The Miami Lakes company manufactures surgical sutures, mesh and bone wax.

A rise in vertical integration is taking shape as a “form of reshoring,” Arguello said. DemeTech is taking a portion of offshore production and reshoring it, as opposed to reshoring an entire company or all its production. Few statistics exist on how prevalent this practice is; a new manufacturer coming to town will garner the headlines, he said. But vertical integration is on the rise.

Raising awareness

To drive the value proposition available to domestic manufacturing customers, the sector should raise awareness of the availability of onshore manufacturing, said Armando Hernandez, CEO of accounting and advisory firm H&Co Advisors. Hernandez has worked since 1992 with companies that rely on domestic and international manufacturing.

Early in his firm’s life, Hernandez worked with scores of companies that turned to offshoring. By 2000, he had none. More recently, Hernandez has been pleased to see them return to onshoring to abate growing issues, like rising costs, supply chain woes, and general reliability of the system. Our disadvantage is government regulations, which require companies to staff compliance departments.

What he’s seeing now is a hybrid solution, where companies are blending their manufacturing and operations in Miami to take advantage of proximity to U.S. markets and an improved tax environment, while also enjoying intellectual property protections that are notoriously lost in some foreign markets, especially China.

“You cannot protect your IP if you give it to another country,” the accountant said. With banks, investors and private equity firms bullish on U.S. manufacturing, and the average tax worldwide at 25%, and only 21% in the U.S., “that gives us a competitive advantage when it comes to attracting manufacturing companies to the US. In general, the conditions have been created to compete in manufacturing. I never imagined sitting at a table talking about manufacturing again.”

Education a ‘valued’ partner

Educators are becoming a more valued partner as well. With a regional workforce over a million strong, manufacturers are finding a labor pool and educators eager to train and upskill talent for highly specialized careers. With two R1 research institutions - FIU and the University of Miami - as well as a dozen other colleges and universities here, higher education and innovation are elevating structural trends in the sector, said Dr. Mark Rosenberg of Florida International University.

Institutions are more market inclined than they were a decade or two ago, he said. FIU, for example, has grown its number of researchers from under 800 to over 4,900, which creates tremendous opportunities for businesses moving here, he said. Universities and state colleges actively work with employers to develop curricula to meet their current and emerging needs. Professors collaborate on innovation, and students serve as interns who emerge with valuable degrees in critical areas to fill in-demand jobs.

Meanwhile, millions of dollars have been invested to develop the science and technology academic disciplines and put out the skilled graduates to meet the market’s needs. The school is exploring storage, wind energy, wireless electricity needed for next-generation electric vehicles, and a partnership with Motorola Corporation in the development of FIU’s Advanced Materials Engineering Research Institute and its cleanroom facility.

From research investment to skilled faculty and workforce, to the land and facilities, the attributes higher education brings, they fit ideally into a larger matrix of opportunity, Goldfarb said. Instead of silos, leaders must consider the greater community’s capacity to improve the shared lot.

“That’s why strong leadership is very important,” Rosenberg said.

Leaders must change the thinking within the business community that these assets are solely service providers. Instead, they should be seen as partners who stand to share in the prosperity that a growing manufacturing and reshoring movement promises to bring, Miller said. Therein lies the economic development strategy.

“As one who came from markets trying to figure out how to claw their way up…we have to wrap our economic development strategy around that,” he said. “The best place to build is from the foundation you have. We have strong financial services, aviation, health and life science. When we think about manufacturing and technology, how do we build out capacity based on those areas?”

By not speaking “with one voice” the region is hurting its prospects for growth and success, Rosenberg said. It begins by building consensus on what economic prosperity looks like, then aligning voices as one. This can help avoid message fragmentation and confusion. With rival in-state markets, such as Tampa Bay, Orlando, the Space Coast and Jacksonville, also competing to develop robust business sectors, including manufacturing, South Florida needs to hone its message.

“If we don’t do it, bring that sense of urgency, it will move someplace else,” Miller said. “That leadership has to be exercised. If we’re not decisive, this opportunity is going to pass us by.”

Partners, from educators and industry leaders to financial institutions, can help domestic and
international manufacturers find success in the local market, especially for those hoping to
reshore their operations.

“As this panel revealed, South Florida has the advantages of producing here: the transparency of an open market economy, elimination of political risk and logistics costs, access to capital markets, the security of our legal system, and partnerships with our colleges and universities that provide a deep labor pool and cutting-edge technologies,” Hagan said. “We have the tools to help manufacturers with the higher costs of labor, facilities and energy in the U.S. through automation and innovation. There is every reason to believe the reshoring trend will continue.”