Aerospace supply chains are morphing. During the last decade, the trend was for original equipment manufacturers (OEMs) to send as much activity as possible to low-cost countries (LCC) to leverage cheaper labor costs. This contributed to the emergence of new aerospace business clusters in China, Mexico, Brazil, Turkey and North Africa. The trend was clear: Manufacturing was headed south (or overseas).

But a funny thing happened on the way to the future. Chinese labor rates increased significantly. New, less labor-intensive manufacturing processes emerged. Governments in some advanced economies targeted aerospace as a growth industry. And in the wake of the Boeing 787 development debacle, OEMs began to question the wisdom of loosely knit, far-flung global supply chains. As a result of these and other trends, supply chain strategies are now more nuanced: “offshoring” has been replaced by “rightshoring.”

Consider that the hottest new aerospace cluster is not in China, but the U.S. Southeast. Boeing, Embraer, Airbus Rolls-Royce and Airbus Helicopters (formerly Eurocopter) have, or will have, established final assembly facilities in the region, and dozens of sub-tier suppliers are following suit. Investors are attracted by low energy costs; pro-business state governments; flexible, non-unionized labor; and access to the U.S. defense market. I recently attended an aerospace conference at which South Carolina's Republican governor, Nikki Haley, gave her personal mobile phone number to prospective aerospace investors.

To the south is Mexico, the other burgeoning manufacturing cluster. The pace of development has been torrid as a result of proximity to leading North American aerospace OEMs, relatively stable wages, solid protection of intellectual property (IP) and a growing skills base. Wisely, Mexico harbors no ambitions to create its own indigenous aircraft program—there is no Mexican regional jet. An energetic young president, Enrique Pena Nieto, is making deep structural reforms, and drug-related violence is ebbing. Recent investors include Safran, Bombardier, Cessna, Zodiac and B/E Aerospace. And companies with a long-standing presence in Mexico, such as Honeywell and GE, continue to shift manufacturing, engineering and MRO activities there.

Another new manufacturing cluster is in Singapore, the city-state known primarily for its national airline and MRO activities. Despite having a per-capita income in excess of $50,000, Singapore is banking on manufacturing to fuel its next wave of aerospace development. Like Mexico, it offers sound IP protection. Singapore's highly skilled workforce and outstanding universities appear to be tailor-made for advanced technologies such as additive manufacturing. The headline investment is Rolls-Royce's Trent manufacturing facility, the first major aero-engine final assembly facility in Asia. This will facilitate a new manufacturing ecosystem in Singapore and neighboring countries.

Despite the rise of these new clusters, China remains a magnet for aerospace investment, thanks to its status as the largest market for transport aircraft and the rise of its aerospace champions Comac and Avic. However, China is not the slam-dunk for new factories that it was just five years ago. Rising labor costs, the appreciation of the yuan, concerns about IP protection, and the emergence of new low-cost competitors in places like Malaysia and Vietnam all mean China will need to work harder for investments than in the past. The days of easy labor arbitrage in China are over.

The fact that two of these four popular aerospace clusters are in high-labor-cost countries underscores the new realities of aerospace investment. A recent multi-industry survey concluded that 28% of new manufacturing investments in 2012-14 would be in high-labor-cost countries—up 15% from just a few years earlier. The new imperative for aerospace supply chains is not offshoring or reshoring, but “rightshoring.”

What are the implications? Look for labor-intensive manufacturing activities such as hand lay-up composites, simple sheet-metal fabrications, or basic five-axis machining to continue to migrate to low-cost regions, but high-technology fabrication and final assembly to remain primarily in advanced economies. This will create continued churn in the supply base. As one marketing executive recently put it. The decision facing many suppliers will be whether to “automate, emigrate, or evaporate.”

Contributing columnist Kevin Michaels is a vice president in ICF SHE&E's Ann Arbor, Mich., office, where he leads its aerospace and MRO practice.