GUEST OPINION: 'Reshoring' grows from trickle to trend
It began as a ripple, but it’s becoming a powerful wave.
I’m talking about the reverse migration of manufacturing from China to the United States – known as “reshoring” – that appears to be gaining momentum.
At first the evidence was primarily anecdotal, as companies such as NCR Corporation, All-Clad Metalcrafters, Master Lock, Peerless Industries, and Ford Motor Company announced plans to shift certain manufacturing operations from China to the United States.
Now, as more and more companies make similar announcements, what began as a trickle is building into an unmistakable trend. Further evidence can be seen in a recent Boston Consulting Group (BCG) survey of U.S.-based executives, more than half of whom told us they already have plans to bring production back to the U.S. or are actively considering it.
Completed in August, the survey focused on manufacturers from a variety of industries. All of the companies have annual sales of $1 billion or more, manufacture in both the United States and overseas, and make products for both the U.S. and non-U.S. markets. That was our survey universe.
What we learned from the more than 200 respondents was eye-opening (though not surprising). We learned first that corporate America has been paying close attention to the shifting economics of global manufacturing. Manufacturers are fully aware of the sharp increases in Chinese labor costs.
As a result, some 54 percent of the respondents told us that they’re planning to reshore or seriously considering it. Asked the same question in Feb. 2012, just 37 percent of respondents were considering such plans.
The new survey also found a significant increase in the percentage of companies that already have taken steps to shift production back to the U.S. On this question, 21 percent of respondents said they’re “actively doing this” or will do so “in the next two years.” This was more than double the 2012 percentage.
The main factors driving the reshoring decision were labor costs (cited by 43 percent of respondents), proximity to customers (35 percent) and quality (34 percent). Other factors included access to skilled labor, transportation costs, and supply-chain efficiencies.
The findings confirm that reshoring is more than just a buzzword; it’s a fact of life.
When executives consider the total cost of production for many products, especially those intended for the U.S. and other developed markets, the advantage now often shifts to the United States. Labor costs, workplace flexibility, energy costs, productivity, proximity to market: They all add up to a growing U.S. advantage, which means more and more companies will continue to shift production to the U.S.
This means jobs. As we explained in August in another report, “Behind the American Export Surge,” reshored production from China, combined with production that’s being shifted to the United States from Europe and Japan, could create from 2.5 million to 5 million new factory and related service jobs by 2020.