Execs Cite Reasons for Onshoring

There is some evidence that US manufacturers are at least reevaluating their offshore manufacturing strategies. According to a report released yesterday by Cook Associates Executive Search, 85 percent of 3,000 c-level executives polled in the low-volume, high-mix manufacturing space say production jobs might actually return to the US.

To be fair, in electronics manufacturing, high-mix, low-volume production has largely remained on our shores. Medical, defense, aerospace, and security equipment are among the leading electronic products still built in the US and Canada. Cook's survey cast a wider net than just electronics, including a range of small and midsize US manufacturers. However, Cook said in a press release that “low-volume, high-precision, high-mix operations, automated manufacturing and engineered products requiring technology improvements or innovation” are the jobs most likely to return.

And if anything has been emphasized by the electronics industry this year, it's been innovation. (See: Reconnecting With the Spirit of Innovation and Innovation, Globalization & the Perils of Commoditization.)

Overseas costs are the leading factor in the executives' decision-making, according to the report. Wage inflation, particularly in China, has many managers concerned. But respondents also cited other factors:

Nineteen percent cited logistics and 36 percent stipulated other reasons, including economic/political issues, quality and safety concerns, patriotism and overseas skills shortages for highly technical manufacturing processes.

The slow economy is also contributing to a stay-at-home mentality, the report says. Companies are increasingly focusing on quality and customer service as differentiators, both of which are better managed locally. There's also a concern that certain skill sets are lacking in the Far East:

China and Asia generally are unable to meet the demand for skilled workers. Finally, patriotism was cited as a factor as executives looked for a return to a “Made in America” mentality in the U.S.

15 comments on “Execs Cite Reasons for Onshoring

  1. stochastic excursion
    December 16, 2011

    Good info, shows that reasons for keeping high-mix manufacturing on US shores are largely subjective.  I believe the reasons reported will not be compelling enough to cause high-volume manufacturers to pull out of Asia.

  2. Cryptoman
    December 17, 2011

    As highlighted in the report, low cost of manufacturing is what makes China attractive. However, low cost manufacturing does not always ensure high quality. In order to achieve a good level of quality, there needs to be additional costs that the quality control mechanisms will bring. The quality control will force the skills of the labour up. As a result, the skilled labour will expect more in return for the value they are adding to the ongoing operations.

    Another reason why the cheap labour is unlikely not stay cheap forever is because the entire world is connected nowadays and everyone can find out about and chase new opportunities outside their place of birth. When this happens, the cost of manufacturing will also start to increase.

    Since there are so many people in China and access to high level education is far less than that in the West, there is almost an unlimited supply of unskilled cheap labour. Therefore, this transformation will not happen anytime soon and the western manufacturers will still be attracted to China for many years to come.

  3. DataCrunch
    December 17, 2011

    “Made in America” will not be enough.  The profit numbers  will dictate the direction companies move.  As of right now from a labor cost perspective, China is difficult to beat. 

  4. SunitaT
    December 18, 2011

      As of right now from a labor cost perspective, China is difficult to beat. 

    @Dave,I heard companies which don't outsource the work get addtional tax benefits, is it true ? If it's true, is this method still costlier compared to outsourcing the work to other nations ?

  5. SunitaT
    December 18, 2011

    “patriotism was cited as a factor as executives looked for a return to a “Made in America” mentality in the U.S.”

    @Barbara,  do you feel this trend will hurt the globalisation process if every country starts taking decision based on patriotism many countries might close the door for imports. For example in India traders are against FDI in retail sector, because they think it will hurt the local traders, but FDI investment will benefit the consumers. 

  6. Daniel
    December 19, 2011

    Barabara, I think most of the outsourcing happened in IT and BPO sector. In electronic industry outsourcing is very less because talented technical skills are important than cheap labour. Most of the manufacturing in electronic industries is happened in parent countries. On the other hand, going global is a universal trend in industry rather than narrowing the base root, so I think in order to make sure about their global presents, they has their own offices in each country either as a assembler or manufacturer.

    December 19, 2011

    It is a tricky situation in that one can understand the desire to keep jobs local when there is high unemployment and recession but I wonder if corporations will risk further reduction in bottom line to appease the “Made in America” protaganists.

  8. Barbara Jorgensen
    December 19, 2011

    @tiralpur: that's an excellent question. My guess is, it depends on the economic situation in each country. A decade ago, the US was very much pro-globalization becuase the country and economy were doing well. It wasn't until unemployment started creeping up that patriotism became a factor in the population and beiieve me, it will also be factor in the upcoming US elections. I think it is too late to pull back, though–any country that wants to prosper will have to play a role in the global economy.

  9. Jay_Bond
    December 19, 2011

    This is not surprising at. There have been concerns that recent inflation overseas and U.S econommic woes would change some companies minds. The idea is great from certain standpoints, but does have some sticking points. Companies that have invested largely overseas have to weigh the cost options to onshoring. If they need to build new plants or update exisitng ones along with labor costs, how long will it take to recoup the money spent with savings from moving back stateside?

  10. AnalyzeThis
    December 19, 2011

    @Jay_Bond, right, exactly, the situation is different if you've already estabished operations overseas. There's a great deal of cost associated with essentially starting over again elsewhere, not to mention a gigantic time investment.

    It's a different situation for companies who have yet to build significant resources overseas or who haven't done any/much outsourcing at all.

  11. SunitaT
    December 20, 2011

    I think it is too late to pull back, though–any country that wants to prosper will have to play a role in the global economy.

    @Barbara, you can never trust politicians. They will do everything to secure their place in the parliament. Infact FDI in retail was dropped in India because of immense political pressure. Sometimes these key decisions are based on popularity of the decision.

  12. Barbara Jorgensen
    December 20, 2011

    @tiralapur: it's too bad we are so cynical about polticians, but unfortunately it is well-deserved. You see candidates veer from their message b/c it is not popular with the voters. A year from now, I wonder if the US immigration policy will be so hotly debated and China will be blamed for all struggling economies.

  13. JADEN
    December 21, 2011

    It would be a great thing if US can return productions back, it's been the base of Technology and  great innovation to the World, hope to see this happening again.

  14. Himanshugupta
    December 22, 2011

    @DennisQ, i also agree with you and Jay_Bond regarding pulling back the operation is nightmare especially when the lot of investment has already been done. I think that companies need to rethink in these times while setting up any shop. The globalization has shrunk the world but it has also shrunk the opportunity window to encash the investment cost as we have seen in recent times. Earlier companies (mostly manufacturing) used to think long term (more than 20 years or so) but i think they can not predict anything beyond 10 years now.

  15. Himanshugupta
    December 22, 2011

    @tirlapur, i wonder whether all nations struggle with their politicans. We all love to hate our politicians. Mostly because of their stupid arguments and fickleness.

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