More than a third of US manufacturing companies recently surveyed by the Boston Consulting Group say they plan to bring production back to the United States. Among companies with revenue of $1 billion or more, 37 percent say they'll move some operations back; 48 percent of companies with revenue of $10 billion or more plan to repatriate production, according to BCG.
Interest in shifting manufacturing back to the US is particularly strong among companies in several sectors, according to BCG: transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics. Companies in these industries say the advantages of offshore manufacturing -- among them, low-cost labor -- are starting to diminish. Specifically, says BCG:
In the new survey, 67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the U.S.
Among the reasons cited by these companies for moving back onshore are increasing labor costs overseas, concerns about product quality, and a desire to be closer to customers, says BCG in the press release cited above. Additionally, 92 percent of survey respondents said they believe that labor costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”
BCG says the results are consistent with findings in earlier reports.
I suppose it was only a matter of time before this happened. Question is do US companies now seek other low cost areas or bite the bullet and make USA onshoring a desirable solution.
The move to return manufacturing industry back to the US certainly makes economic sense for the industry. Several factors would have precipitated this move. For example labour gains are shrinking and wages are rising in China etc. I think it's the right move.
Finally many Industries in US will be happy about the manufacturing sector slowly coming back to home. Certainly many companies would realize moving manufactruing overseas may not be really beneficial like before considering the rising labor costs and also other ties between china and USA.
It's good to see some actual data on the subject, to support what many of us have been seeing over the last couple of years.
Two things surprised me though. Firstly, that labor costs were the #1 reason, when I think much of it is based on ease of doing business, and the fact that length of the supply change reduces flexibility. When a downturn hits, companies have 6 weeks of inventory on ships, and can't cut back quickly.
Secondly, there's no mention of Mexico production. Many companies are already located across the border, including Foxconn. They get the advantages of onshoring, but also benefit from lower labor costs and preferential government policies. So my guess is, a significant poriton of the production mentioned in BCG's article will actually go to Mexico.
@Steve: I agree with you. The Mexico factor will play an important role in determining where the production actually lands. On paper, Mexico with comparatively cheaper labor and less strict laws seems to be a better option.
It's great to see some real numbers stating the onshoring movement is under place. With rising costs of labor overseas and the continued rise in fuel prices, many companies would be better off with returning to the states.
The article ends with "70 percent agreed that "sourcing in China is more costly than it looks on paper." The easiest way to find the actual or total cost is to use the free Total Cost of Ownership Estimator(TM) at www.reshorenow.org.
I think the last decade has been a learning excercise on the offshoring of business for the US industry. The lessons learned from it will help US industry to become choosy on what to offshore and what to keep onshore. It will also help the US manufacturing ti restablise itself and also bring back some sense of self pride among the US manufacturers.
For common man , the final product cost anyway will continue on the upward trend
There are three fundamental reasons why most Americans can expect some more manufacturing jobs (as compared to today).
1) Falling Natural gas Prices thanks to the Shale Gas boom.What this does is to make Energy costs(Particularly Electricity) much-much cheaper in America than anywhere in Asia.
2)Rising Wages demanded by Asian Workers-Asian Workers are demanding higher and higher wages to account for Annual Double Digit Inflation rates particularly in India and South East Asia.In contrast American workers would rather take whatever jobs come there without complaining too much about Salaries(atleast initially).
3)Rising Protectionism and obstacles to Free Trade globally(France is the leader here) means that most manufacturing will have to move closer to where Consumers are and since America remains the biggest consumer market in the world all this manufacturing will have to eventually come back to America.
Regards
Ashish.
P.S Regarding your talk about Final product cost will continue to rise-It depends on which industry you are in-In Electronics Deflationary Pressures continue to reign supreme;in contrast in Food and Fuel Inflationary Pressures reign Supreme.
Thanks for giving me your insight on why jobs are coming back to US. I beleive in the coming decade it will become a level playing field whether you are doing business in US or in Europe or in Asia.
In US and in Europe a trend of protectionism seems to have resurfaced ( kind of protectionism earlier found in Communist countries) while Asian countries are benefitting from the globalization of their business.
It will be interesting to see how the global scenario changes in the coming decade.
I for one am not very positive on Europe(with the exception of Germany ,Holland, Ireland and the Scandinavian Countries) for the simple reason they are not willing to work hard enough to compete fairly with Asians and Americans.
At the same time,they don't have the resources to take care of their manufacturing needs.Europe is just overloaded with Debt and its all debt financed consumption (The PIGS alone have close to USD 5 Tillion in debts).This is not a model which is sustainable in the long-term.
And lets not forget they have the 2nd worst Demographics on the planet-After the Japanese.
Lets face it,What does Europe have that America or Asia wants???
Mueseums? Olive Oil?Culture? The most expensive Gasoline on the planet???
Frankly speaking if the PIGS+France all decide to cut themselves off from the Global economy today(which is what they want to do through increased protectionism);it won't be a Big loss for the rest of the world.For them,it will be a much-needed wake up call.
I am sure you must have seen this yourself in India.
Indians in the Private Sector are ready and willing to work much-much harder than Europeans.Its the same with the Chinese and rest of Asia.Even Americans are getting in on the act very fast.
Judging by reader comments, we have a better-informed constituency at EBN than in the general public. I wish companies would cease using the labor cost argument entirely. It is, and always has been, a small part of the cost in electronics manufacturing. The reason we see thousands of workers on an assembly line at Foxconn is becuase that is the way Foxconn set up the business. In Brazil, Foxconn is implementing robots and automated lines. I think any company that wants to manufacture in the US, or Europe or Japan has a cost-effective solution to do so. Enough already!
So much for onshoring and employment returning back to the US....
And they are massively benefitted by all the Cheap Credit and Loans that they get here in America(thanks to our Zero Percent Interest rates).
If you compare that with say a Chinese company or an Indian Company for instance;Corporations there have to pay higher(much-much higher) borrowing costs than in America.
And,lets not forget one more thing-Ordinary Americans are very much at the losing end of this current Zero percent Interest rate regime today(as Inflation is much-much higher,in some cases as high as 10per cent today).
Unless Americans are prepared to ask their representatives in Congress why this is the case,nothing will change.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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