I was listening to the radio recently when NPR began to broadcast a report about the increased reshoring of manufacturing to the United States. NPR interviewed Harold Sirkin, a senior partner at Boston Consulting Group who has been surveying companies about reshoring. Sirkin stated that 20%-25% of the manufacturing operations that have been offshored will eventually be reshored. This has been a hot topic in the electronics supply chain since 2007, and though major companies like Walmart and Apple have announced their intention to offer more US-made goods, the continued disparity between labor rates in China and those in the US seem to challenge the feasibility of this movement. Still, this is NPR — the voice of reason. If they report it, it must be true, right?
As it happens, I agree with NPR. Not because I think that the word of any news media outlet is beyond question, but because I know that labor cost is only a part of the equation when it comes to making choices about where to produce a product.
For example, one of the most influential factors in the reshoring decision is the growing demand for last-minute customization by customers in the region. We all want what we want, now. No one wants to wait two months or more for a shipping container to arrive from China. Beyond the considerations of shipping capacities, utilization, and the cost of fuel, today's manufacturers are highly sensitive to the cost of inventory sitting in the transportation mode for weeks on end, as well as the potential detriment to consumer sentiment and the brand image that may come from delayed product releases.
Other key factors in the reshoring discussion are political stability, foreign direct investment, and let's not forget IP protection. Despite some progress, China continues to show a lukewarm commitment to foreign brands and protecting their IP rights. While I am fairly confident that we will see a resurgence in manufacturing in the Americas in the coming years, I believe that small and mid-size OEMs and EMS players are more likely to drive the movement than the big guys like Walmart and Apple.
Whether these Tier 1 and 2 players restart US production facilities or simply halt their offshoring plans, this is where the real impact on consumers and American workers will be most strongly felt. Of course, this will be harder to measure and won't make as big a splash in the press, but the results will nonetheless be significant for the US economy.
The NPR broadcast concluded by drawing an interesting parallel between the re-shoring movement and the impact that Henry Ford had on workers when the mass production of the Model T was introduced — essentially jump starting the new middle class in America. It's not clear that re-shoring will bring about that momentous a change in our country, but there is no doubt that our economy could use a jump start, and manufacturing is just the spark we need.