The U.S. Reshoring Trend
July 25, 2014
At one time, the trend of offshoring U.S. manufacturing and assembly work to companies in China and other parts of Asia made economic sense. Manufacturing facilities could be built in Asia at a lower cost than in the U.S., along with cheaper labor and very few regulations. In addition, there was also the perception that U.S. quality levels were lower than offshore.
However, things have begun to change in the last few years as the economic recession has reduced labor rates in the U.S and labor rates in developing countries in Asia have begun to increase. Since 2010, more than 200 companies have brought back production to the U.S. that they had previously sent out of the country.
Another form of onshoring involves foreign companies offshoring their jobs to the U.S. The first major industry to bring jobs back to the U.S. was the automobile industry. Today almost all of the European and Asian automakers have plants in the U.S. Across all industries, from 2007 through 2012, foreign investment in U.S. manufacturing totaled $493 billion versus $270 billion the previous 6 years.
There are numerous factors that are causing this reshoring activity:
- Chinese operations face the prospect of a 15-20% annual wage increase. U.S. manufacturing costs and manufacturing costs in China will equalize by the end of 2015 (Source: Forbes)
- The strength of the Chinese economy and international opinion on floating their currency is putting pressure on the Chinese currency, combining to make Chinese produced goods more expensive (Source: Forbes).
- There is an abundance of natural gas in the US. Many plants have converted to natural gas and the comparison of costs is dramatic. In Asia, natural gas can run $18 for 21 million BTU, in Europe $10, and in the U.S, $4 . Electricity prices have also skyrocketed in China, up 15% since 2010. (Source: Forbes).
- Industrial land in China is actually more expensive than many parts of the U.S. The national average is $10.22 per square ft. , compared with just over $5 in many parts of the US (Source Forbes).
- Rising shipping costs and shipping time raises the cost to get goods to market.
- In many foreign countries, goods made in the US are held in high esteem and, in general are perceived to be of better quality than foreign goods.
- Localization, the drive to manufacture goods within a regional territory to serve that local economy.
This leaves the U.S. with an opportunity. U.S. manufacturing would prefer to have production facilities close to home to help eliminate the managerial, operational, and cultural barriers that come with overseas plants. Companies like GE, Boeing, Caterpillar, Ford, Master Lock and Coleman have moved operations back to domestic factories over the last two years. Much depends on how competitive the U.S. manufacturing continues to be, but it is the productivity of the American workforce that provides the true advantage. U.S. manufacturing output is 2 ½ times greater than it was in 1972. (Source: Forbes)
Challenges remain, however, as a quality trained workforce for new manufacturing positions might be difficult to sustain.
Ten years ago the world was all about Globalization and chasing cheap labor, primarily in the Asian continent. While the labor equation still matters, other factors are playing into a more localized pursuit of manufacturing that will supply the majority of products consumers plan to utilize in their own regional economy. IEWC has made investments outside the U.S. and currently operates in 20 locations spread out across 4 continents. IEWC’s ability to supply locally procured material for the local marketplace is being well received by local customers, ensuring they receive the same quality products and service levels virtually anywhere in the world.