What’s Preventing Onshoring from Taking Off?

There is no easy answer to the burning question why the onshoring movement refuses to truly take off.

The issue of onshoring is frequently painted in black or white. While the news media frequently writes like the return of companies to the United States from overseas is to be likened to a stampede, sceptics may to too quick to downplay the positive impact of the recent movement of manufacturing. 

Nevertheless, those who were looking for a true Renaissance of American manufacturing have, at least so far, reason to be disappointed. Even among some high-profile companies – most notably Apple and GE – that announced their return with great fanfare, reality has set in. GE has battled high turnover rates at its re-opened Kentucky plants as workers reportedly refused to perform certain tasks while Apple has been stumped by the shortage of engineers.

Although the number of companies bringing production back home has risen significantly in recent years – from 64 in 2011 to 300 in 2014 – they are still outnumbered by those going in the opposite direction.

However, the issue is more complex than net gains or losses. According to new research by Morris Cohen, a Wharton School professor of operations and information management, and Hau L. Lee at Stanford University, “there is an unprecedented amount of restructuring going on.” In some cases, departments within the same company are onshoring and outsourcing at the same time, each weighing the perceived pros and cons differently. 

In a Knowledge@Wharton interview, Cohen elaborated on the trend:  “I'm going to go to China. I'm coming back from China. The same company simultaneously making what seemed to be opposing decisions. And when you asked them why, they would give the same reasons. It's because of labor costs. It's because of market access. It's because of this and that.”

In fact, they found there appears to be no dominant reason that companies make one decision or another in favor of onshoring or staying put.

And barriers seem to remain the same as when the onshoring movement began to gain momentum: The lack of skilled workers coupled with an aging workforce still rank high on the list of negatives. The rapid pace of offshoring in 1990s and early 2000 made younger generations lose faith in the viability of a manufacturing career.   

Patrick Van den Bossche, the Americas Lead Partner at A.T.Kearney's Strategic Operations Practice – which released its inaugural Reshoring Index last year – explained the problem in, “Think about it — if you have a kid in school, with everything that happened in the last few years, with manufacturing moving overseas as fast as it did, would you feel comfortable to tell your kid to develop a career in manufacturing? I don't think so.”

At the same time, countries like China, Brazil, and Eastern Europe, previously known for their low-skilled labor are quickly improving and investing in high-tech industries. With a greater pool of skilled workers abroad, a move back to the United States will seem less urgent. And with the arrival of robotics, the issue of labor costs will likely take on even less significance. 

So the big question is, how should the United States stand up to the competition? What do you think?

2 comments on “What’s Preventing Onshoring from Taking Off?

  1. Redding McLemore
    December 2, 2015

    What should America do next?  I think we should accept that much of the onshore/offshore decision will be the weighing of labor and transport costs against speed of change.  The need for rapid design cycles pushes manufacturing away from manufacturing lines that have tome to mature and improve over time, toward the use of people that can quickly adapt.  That drives manufacturing toward low cost, semi skilled labor. 

    If we can develop robotic/mechanized assembly lines that can change as fast as a human assembly line, then we have a long term on-shore possibility.  That drives a need for skilled technicians in robotics.  If we improve our labor force in this direction, onshoring becomes more viable.

    To help America not only re-shore, but to leap ahead on many fronts, perhaps it is time to add compulsory higher education/training – 1-2 more years fulfilled by community college, universities or a skilled trade.  Leaving high school with a general degree is no longer enough.  Imagine if we had an entire generation with more education than competing countries.

  2. ramesh99
    December 8, 2015

    yea even i tought the same

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