A recent report on manufacturing site selection contains both good news and bad news for the US.
First, the good news. According to the report, "Reshoring Global Manufacturing: Myths and Realities," by the Hackett Group, the cost gap between manufacturing in China and production in the US is narrowing. By 2013, says the report, the total landed cost of manufacturing in China will be only 16 percent lower than that of the US. This margin, analysts believe, represents the "tipping point" where manufacturers consider reshoring as a viable option.
Now, the bad news. The study also finds that companies are pursuing sites in other developing nations as a low-cost alternative to China. China has been a handy scapegoat in the debate about US jobs moving offshore. According to the Hackett Group, jobs will still remain offshore -- just not in China:
Countries including India, Thailand, Vietnam, and Brazil continue to successfully grow their share of global manufacturing as they become more cost effective countries for manufacturing. "The cost increases in China are impossible for companies to ignore," said The Hackett Group Chief Research Officer Michel Janssen. "As Chinese wage rates rise, companies are looking to maintain their competitive edge by either bringing that production closer to developed markets, moving it to lower wage countries, or increasing productivity in China."
From my perspective, the question now becomes: Will these nations become as vilified as China? They are, after all, landing jobs that 20 years ago would have existed in the US. I think it depends on whether the US accepts the fact that these jobs are never coming back: "Few of the low-skill Chinese manufacturing jobs will ever return to advanced economies; most will simply move to other low-cost countries," the report concludes.
There are other factors that have contributed toward the vilification of China: the theft of IP, human rights abuses, unfair trading practices, and low-quality merchandise among them. But from a purely practical perspective, costs in the US and China aren't that different:
Reshoring is expected to become more viable with each passing year, as the total landed cost gap of manufacturing offshore shrinks. The Hackett Group’s research found that the cost gap between the U.S. and China has shrunk by nearly 50 percent over the past eight years, and is expected to stand at just 16 percent by 2013. This trend is largely driven by rising labor costs in China, as well as rising fuel prices globally, which affects shipping costs.
Total landed manufacturing cost continues to be the leading factor in companies' site selection. The key components of this cost are raw material and component costs; manufacturing costs; transportation and logistics; inventory carrying costs; and taxes and duties. According to the Hackett Group, the cost differential between other developing nations and the US is as much as 20 percent. As long as the majority of manufacturers -- 85 percent, according to the study -- measure cost as the main driver in site selection, manufacturing is likely to remain offshore.
I am putting my money on Vietnam. They have the right location ( Pacific ), scale ( not too big to entertain superpower dreams ), attitude, intelligence & persistence ( after all the pounding they took from the US for 12 years, they still won ). Intel is already there and loving it.
You can also consider Sri Lanka as well. The labou cost here is very low and you have alot of resources and man power to back your business. Thee is a huge job market here in Sri Lanka where foriegn investors can benefiot a lot out of it if they consider the island
@Anna: I wasn't surprised by the findings either, but I continue to be surprised that a good slice of the American public still believes that reshoring manufacturing is going to be the savior of the US economy. Aside from all the political posturing, I believe the US workforce has priced itself out of most low-skilled manufacturing jobs.
@_hm: I think the wage rate in a particular country or region is determined by the supply of labor force and their expectations. One of the key reasons why the US workers expect a high wage rate is because the cost of living in the US is high. So the .workers need a higher wage to bear that.
It is also due to prudent compromise from US labour force. They need to control their expectation. You do not expect to pay $100+ for auto assmebly line worker with moderate efficiency or also true for other fields. Unions are also part of problem. If better sense prevail, much of reshoring will take place soon and this will be very good for all.
Barbara, I'm not at all surprised at this report findings by Hackett groups. "The cost increases in China are impossible for companies to ignore," Okay, we understand. So these jobs will not make it's way to the developed economy. I think the Western countries realised this long ago that the manufacturing industry will not make its back. I'm wondering what happens in some years to come, say after China, Brazil, India etc. What's next?
"A recent report on manufacturing site selection contains both good news and bad news for the US." AsanoptimisticpersonIwillfocusatthegoodnews.Althoughitmakesmetothinkbecauseofthesmalldifferentinmanufacturingcostsmaybecompaniesstop to migratingtoothercountries(themanufacturingsector)fromtheotherhand,Iamwonderingitthat20%isbecausetheAmericanworkersearningsolittle...
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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.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
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.