The Case for Nearshoring Manufacturing to Alberta
We’ve all heard how over the past couple of years there has been a newfound focus for companies to actively strategize and implement the relocation of their manufacturing activities away from overseas (and politically diverse) countries to more optimal locations, being those with comparable political, economic, timezone and trade policies. Some terms you may have heard include; reshoring, nearshoring, friendshoring, safe shoring, allyshoring, and onshoring. All of these terms describe different mechanisms to transition manufacturing activities to somewhere that can ensure reduced supply chain risk, improved quality control, and better PR. For North American companies, the logical case lies to the south in Mexico - and the growth is exponential there - but in this article I’d like to pose the thought experiment of analyzing Alberta, in particular, to capture some of this excessive market demand.
Market Demanding Growth in Domestic Manufacturing
Over the past two decades, the industrial market has reached astronomical proportions globally as the world transitioned to a heavy reliance on e-commerce offerings. This in turn redesigned the fabric by which goods were produced and services povided. “Faster, cheaper, better” drove decisions, and through the early 2000’s, offshoring internationally drove popular opinion until the late 2010’s. And while geopolitical tensions were already on the rise leading into 2020, the covid pandemic implications shone a light on the highly fractured and fragile supply chain network that was propping up commerce globally. When so many multinationals were caught flatfooted, trying to backstop failing supply chains, distribution markets were sent into overdrive, away from just in time, to just in case, landing at just too much (can you say sublease market?). However, the consumer good distribution market begins in the manufacturing space (after raw materials are sourced). And since we already know that a large quantity of manufacturing facilities were offshored in the early 2000’s, we can see that the covid bottleneck predominantly occured between production and distribution.
In order to alleviate future supply chain catastrophes like we experienced a few years ago, raw materials, manufacturing and distribution need to be located within the same time zone, land mass and sociopolitical sphere. To this end, a recent Newmark report outlined that since 2020, over 300 major manufacturing facility announcements have been made across North America, representing approximately $400 billion in pledged project investment, at least 210,000 new proposed jobs, and a minimum of 250 million square feet of new development over the next decade. A recent NAIOP report clarifies that this manufacturing comes predominantly in four advanced manufacturing sectors, which combined have captured over 90% of the major investments, and include; high-tech/digitalization, automotive/transportation, energy, and biomanufacturing. Major federal incentives have impacted these particular industries, and show how federal policy can support, and swing, an industry.
(Complexities of) Reshoring Manufacturing
Before getting into the possibilities of nearshoring in Alberta, it’s worth addressing the numerous complexities in relocating manufacturing operations from existing overseas infrastructure; it can’t just be picked up and moved overnight! There are four main areas for all businesses to consider before committing to this strategy:
Operational Decomissioning - The existing operation needs to be terminated which includes employee matters, machinery (is this moving), intellectual property matters, raw material contracts, etc.
Raw Materials Sourcing - It’s extremely important to remember is that if the raw material supply does not move with manufacturing, supply chain disruptions will not be solved. Raw materials need to be sourced at/near the desired new location at a feasible price point.
Investment in Automation and Robotics - It’s likely that at the desired location, there will be a deficit of skilled labour in manufacturing specific to the company’s operations. Furthermore, it is likely that the available skilled labour will come at a much higher cost. Therefore, it is imperative for a company to invest actively in automation and robotics to improve the efficiency of their operations and keep labour costs in control.
Regulatory and Legal Environment - many companies benefitted from less stringent regulatory compliance requirements when they offshored their manufacturing (think pollution, labour laws, etc.). When onshoring back to North America, companies will need to re-evaluate and re-engineer to meet local regulations.
Onshoring will not make sense for all businesses due to the extensive costs and transitionary measures that must be considered and undertaken. However, despite these complexities, there is hightened momentum behind relocation efforts to North America.
Returning to Alberta’s Manufacturing Roots
Now let’s tie this all together with a red and white bow. Why does Alberta make a ton of sense? It is no secret that Alberta holds a historically strong position in the Canadian manufacturing and resource production markets, despite questionable governance and policy federally. The emphasis that our province has put on developing the attributes of a young, skilled, entreprenuerial and productive economy have positioned us to take advantage of this momentous wave of business. To further elaborate, features of this province, and reasons Alberta should be considered for nearshoring opportunities, include:
Natural Resource Availability: Alberta is rich in raw materials like oil, gas, and minerals, which are imperative to manufacturing operations.
Skilled Trades and Labour: Alberta boasts a skilled and diverse workforce, educated via a large network of respected educational institutions.
Global Transportation Connectivity: Robust infrastructure development, including major highways, railroads, and air cargo facilities, support the movement of raw and finished goods across North America and beyond.
Power Infrastructure: expansive power and utilities are available to support manufacturing operations.
Innovation and Technology: The region has consistently encouraged the pursuit of innovation, technology and entrepreneurialism, with integrated economic development programming and supports.
Business-Friendly Environment: Alberta is known for its business-friendly policies, including tax incentives and a relatively low corporate tax rate, among other policies.
Inbound Migration & Quality of Life: Tens of thousands have migrated to Alberta in recent years due to the combination of lower taxes, affordable housing, and greater job opportunities, many of whom have been priced out of their own provinces by rapidly rising housing values and taxes. Where people go, employers go, in their endless pursuit to access skilled workers, a critical factor for business operations.
For Albertans, every new major project (or expansion) that is announced delivers significant economic benefits to the surrounding communites in the form of newly created jobs, extensive capital investment, and infrastructure improvements. We are experiencing a time of major growth, with a record number of manufacturing project announcements across North America set to break ground in the next decade. When analysing the regions that are poised to experience the greatest growth from nearshoring manufacturing, the winners are predominantly secondary and tertiary markets with higher than average levels of skilled workers, abundant affordable land and access to ample energy and raw materials.
I couldn’t make this up if I tried, now let’s get the message out, we’re open for business.