Does On-shoring Herald the Resurgence of IP’s Strategic Value?

Ten Strategies to Consider!

By John Cronin

The dynamic interplay between off-shoring and on-shoring has been a significant facet of global economic trends. Recently, the resurgence of on-shoring[1][2], the practice of relocating business operations back to one’s home country, has prompted discussions on its potential impact on the strategic value of Intellectual Property (IP). This paper delves into how the evolving landscape of on-shoring influences IP’s value and strategic use. It examines how shifts in global manufacturing, coupled with concerns about IP protection and security, are reshaping the strategic priorities of nations. Furthermore, it explores the role of advancements in technology, particularly AI and automation, in amplifying the implications of this transformation.

Definition of On-shoring and Recent Trends

On-shoring, also known as reshoring, involves repatriating manufacturing and business operations to the home country, often reversing the previous trend of off-shoring to low-cost labor markets. Recent examples of on-shoring can be observed across various industries, including technology, pharmaceuticals, and automotive sectors. This transition has implications not only for economic factors like job creation and supply chain resilience but also for the strategic value of IP.

On-shoring, also known as reshoring, involves repatriating manufacturing and business operations to the home country, often reversing the previous trend of off-shoring to low-cost labor markets. According to the Reshoring Institute, reshoring is the relocation of production back to the country where the company is headquartered or where its product is sold from an outsourced overseas manufacturer¹.

This topic is described in SpringerLink article, which discusses the reshoring phenomenon by identifying the main trends, presenting some exemplary cases, discussing motivations and determinants, and explaining the decision-making and implementation processes.

 

Evolution of On-shoring and Off-shoring over 50 Years

According to the Forbes article Supply Chain Solutions: Reshoring And Offsetting The Great Resignation And Demographic Drought (forbes.com), the landscape of on-shoring and off-shoring has undergone significant changes over the past five decades. Initially, off-shoring was driven primarily by the pursuit of cost savings through labor arbitrage. However, as manufacturing capabilities and infrastructure improved in emerging economies, the focus shifted to optimizing global supply chains for efficiency. On-shoring is gaining traction due to considerations beyond cost, such as IP protection, quality control, and proximity to markets.

This evolution symbolizes the dynamic interplay between economic forces, technological advancements, and changing priorities within the global business landscape.

In the nascent stages of this journey, off-shoring emerged as a dominant strategy, driven predominantly by the allure of cost savings facilitated through labor arbitrage. This early phase was characterized by relocating manufacturing and production processes to regions where labor costs were significantly lower, resulting in substantial cost reductions for companies. This approach enabled organizations to tap into the vast reservoirs of affordable labor in emerging economies, boosting their profit margins and competitive advantage.

However, the trajectory of off-shoring underwent a profound transformation as time progressed. Emerging economies, buoyed by investments in technology, infrastructure, and skilled labor, began to develop robust manufacturing capabilities that rivaled those of established industrial powerhouses. Consequently, the focus within the realm of off-shoring shifted from a singular emphasis on cost savings to a broader commitment to optimizing global supply chains for enhanced efficiency and responsiveness.

Against this backdrop, the concept of on-shoring has emerged as a compelling counterbalance to the off-shoring paradigm. Unlike the earlier inclination towards off-shoring driven purely by cost considerations, the resurgence of on-shoring is informed by a complex tapestry of factors that extend beyond the balance sheet. While cost remains a factor, the decision to on-shore is increasingly shaped by strategic imperatives such as safeguarding intellectual property (IP), maintaining stringent quality control standards, and capitalizing on geographical proximity to target markets.

One of the pivotal drivers behind the move towards on-shoring is the heightened emphasis on protecting intellectual property. With innovation and proprietary technology serving as key differentiators in today’s fiercely competitive business arena, companies increasingly recognize the importance of securing their trade secrets and intellectual assets. On-shoring facilitates tighter control over production processes and sensitive information, mitigating the risks associated with IP leakage that can arise when operations are spread across distant shores.

Quality control emerges as another cornerstone of the on-shoring resurgence. While off-shoring might have initially promised cost savings, the challenges associated with managing and maintaining consistent quality standards across geographically dispersed supply chains became apparent. On-shoring enables companies to exert greater oversight and quality assurance over their production processes, resulting in improved product reliability and customer satisfaction.

Furthermore, the strategic advantage of proximity to markets has gained renewed prominence. Rapid shifts in consumer preferences, coupled with the need for agile responses to market demands, have prompted businesses to rethink their supply chain strategies. On-shoring facilitates quicker lead times and enhanced flexibility in adapting to changing market dynamics, empowering companies to deliver products faster and more effectively to their customer base.

Ten IP Strategies to Leverage If You Are On-Shoring

 

We have defined ten areas that can provide insights and opportunities to take advantage of in an IP Strategy to leverage if you are on-shoring, plan to on-shore, or may be impacted by on-shoring.

1. On-shoring Amidst China’s Changing Global Posture: A growing concern about China’s stance on IP protection, cyber security, and trade practices has led to increased uncertainty for businesses operating within its borders. This uncertainty has prompted nations, particularly the USA, to reassess their dependency on off-shore operations and look towards on-shore operations to safeguard their IP.
   Insight: This trend offers a chance to strengthen domestic IP practices and reduce risks associated with IP theft and cybersecurity threats.
   Opportunity: Companies can invest in new IP that covers their domestic R&D and innovation,  boosting their competitive edge in the global market. Even though many Chinese patents have been filed over the last 15-20 years, few have been filed in the USA (only 4.17% of the 1.2 million Chinese patent applications were filed overseas, and a portion of these would have been filed in the USA).[3] Therefore, even a tiny USA IP portfolio can significantly improve your company’s IP position against Chinese (and foreign companies) that might want to use patents to stop you from on-shoring using IP to do that.
2. COVID-19’s Revelation of Supply Chain Dependence The pandemic highlighted vulnerabilities in global supply chains, particularly in industries heavily reliant on Chinese manufacturing. The disruption highlighted the risks of having critical technology and manufacturing capabilities concentrated in a single region.
   Insight: This result reveals the importance of diversifying manufacturing locations to mitigate risks.
   Opportunity: By on-shoring essential technology production, companies can protect themselves and ensure uninterrupted access to critical technologies. Also, by having strong IP positions in the essential technology areas in other countries, it may be possible for patents in foreign countries to stop companies from selling essential technologies to favored nations and instead use the patent systems to ensure flow to the home country.
3. Weakening of Patents in the USA: Post American Inventors Act of 2013: The American Inventors Act of 2013 shifted the dynamics surrounding patents. Instead of merely achieving its intended purpose, the Act inadvertently set in motion a series of events that profoundly negatively impacted the intrinsic value of patents within specific industries.
   Insight: This finding necessitates a more nuanced approach to IP strategy. One should look outside of patents by focusing on strategic partnerships.
   Opportunity: Companies can leverage this environment to foster innovation and collaboration, using patents as strategic assets in joint ventures and licensing agreements. Even though patents may have weakened in this timeframe, patenting and trade-secreting a portion of technology can give a company a net positive IP strength.
4. Strengthened IP Laws and On-shoring in the 1980s: In the 1980s, the United States undertook a strategic recalibration of its intellectual property (IP) regulations in response to Japan’s economic rise. This led to a comprehensive modification of IP laws.
   Insight: Historical precedent for using IP law changes has been (and will always be used) to respond to global economic challenges.
   Opportunity: Current businesses can learn from this history, advocating for IP law reforms that support domestic innovation and on-shoring. Specific IP laws, like using the ITC to stop sales coming into the USA, should be part of your IP development. The use of trade secrets is shielded from these global IP recalibrations and should always be part of your IP strategy.
5. IP-Patents used as a Country-Centric Tool: Patents have emerged as a quintessential country-centric tool, bestowing exclusive rights within a defined jurisdiction and empowering nations to protect their technological progress.
   Insight: This focus highlights the role of national IP policies in fostering innovation and economic competitiveness.
   Opportunity: Leverage national patent systems to protect homegrown innovations, especially when repatriating manufacturing and R&D activities. One could obtain multiple patents on various sub-components or sub-processes of an overall product or process. Then, one could selectively file some  patents in some countries so the overall product or process can be protected inexpensively and that no one patent group must be filed in all countries.
6. New Manufacturing IP’s Role in On-shoring: Combining on-shoring efforts with developing new manufacturing patents presents a double-strength strategy, protecting novel manufacturing processes and enhancing your competitive advantage.
   Insight: This strategy emphasizes the strategic value of creating and protecting manufacturing-related IP.
   Opportunity: Invest in developing patented manufacturing processes and technologies to give a competitive edge in the global market. Producing in the country, finding new incremental improvements in the manufacturing processes, and patenting it are more robust strategies than simply on-shoring manufacturing.
7. On-shoring and High-Quality IP Trade Secrets: The symbiotic relationship between on-shoring and safeguarding high-quality IP trade secrets amplifies strategic benefits, maintaining a competitive edge.
   Insight: This trade secret strategy highlights the enhanced importance of protecting trade secrets in an on-shoring context.
   Opportunity: Develop robust mechanisms to protect trade secrets, ensuring localized manufacturing retains its unique advantages. It is essential to develop a robust trade secret program. [4]
8. IP Patents and Trade Secrets as Ultimate On-shoring Weapons: File patents and find and hold trade secrets strategically can converge as ultimate weapons in the on-shoring arsenal, fortifying a nation’s manufacturing capabilities and deterring competitors.
   Insight: Demonstrates the power of combining different forms of IP protection in an on-shoring strategy.
   Opportunity: Develop a comprehensive IP strategy, including patents and trade secrets, to maximize protection and competitive advantage. It is very likely that, in understanding the “best mode”[5] of patent filings and timing when filing patents, one can ALWAYS have trade secrets and patents.
9. Beyond Labor Costs: Technology and Manufacturing: The paradigm shift in on-shoring signifies that manufacturing success is not solely based on low labor costs but also technology and automation.
   Insight: There is a growing importance of technological innovation in manufacturing, which requires invention and hence new IP.
   Opportunity: Invest in advanced manufacturing technologies and automation to enhance efficiency and create new  IP as you are doing it. More automation will likely be needed to compete with labor cost differences. Interestingly, on-shoring is more attractive at the right time frames, where automation can replace labor costs. It is highly suggested that invention processes be used to invent new automation.[6]
10. AI’s Role in Revolutionizing On-shoring: AI accelerates the convergence of factors contributing to on-shoring’s strategic value, including AI-enhanced robotics and supply chain optimization.
    Insight: AI highlights the transformative impact on manufacturing.
    Opportunity: Embrace AI technologies to revolutionize on-shoring processes, from production to supply chain optimization. Almost all new AI enhancements can be patented, and the AI algorithms hold trade secrets offering ideal leverage to protect on-shoring from copycats and countries re-learning off-shoring!

 

In conclusion, the resurgence of on-shoring presents a pivotal moment for nations to reimagine and reinforce their IP strategies. This paper has outlined ten critical strategies that highlight the increasing strategic value of Intellectual Property in an era where on-shoring is becoming increasingly prominent. These strategies emphasize the importance of leveraging IP for competitive advantage, protecting against cybersecurity threats, and ensuring supply chain resilience. The evolving global landscape, marked by technological advancements and shifting economic powers, necessitates a proactive approach to IP management. This strategy involves safeguarding existing IP and innovating and developing new IP aligned with on-shoring initiatives. By embracing these strategies, nations and businesses can turn the tide in their favor, ensuring that their on-shoring efforts are economically beneficial, strategically sound, and IP-centric. The future of global manufacturing and business operations hinges on adapting and thriving in this changing environment, where IP’s role is more crucial than ever.

[1] https://www.foley.com/insights/publications/2023/03/favorable-conditions-onshoring-2023/

[2] Reshoring Trends: Rapid Investment Spurs Domestic Capacity (tilleydistribution.com)

[3] What Does China’s Rise in Patents Mean? A Look at Quality vs. Quantity | St. Louis Fed (stlouisfed.org)

[4] Invent Anything™ Podcast – ipCG | Innovation and IP Consulting   Episode 11 – Using Trade Secrets to Create Tremendous Value

[5] Best Mode Requirement – Smith & Hopen (smithhopen.com)

[6]  Invent Anything™ Podcast – ipCG | Innovation and IP Consulting  Episode 32 – Get More Patents with Invention On Demand