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April 2013

Re-shoring: The Great US Debate

Published in various journals such as Manufacturing, Design News, Packaging Digest and Control Digest, re-shoring of manufacturing is a hot topic.

But as many commentators note, re-shoring is not a new idea.

“Ideally” said Jack Welch in 1998, when he was CEO of General Electric, “you’d have every plant you own on a barge to move with currencies and changes in the economy.”

But Jeff Immelt, GE’s current CEO, now calls outsourcing “yesterday’s model”. GE has now returned production of white goods such as fridges and washing machines from China back to the US.

Simply put, the pull of low-wage economies is weakening.

Wages for Chinese manufacturing workers are rising at 20% annually, faster than their productivity is growing. A strong Chinese currency is adding to upward cost pressure. Boston Consulting (BCG) believes that “by 2015, it will cost about the same for American firms to manufacture in America as is China”.

Today, Asian companies such as Lenovo (Chinese IT giant) and Foxconn (Taiwanese electronics) are investing in US production.

Undoubtedly, the manufacturing ‘equaliser’ is automation. Leading companies such as Automation GT are able to automate processes that were unthinkable ten years ago.

A win-win situation for the US. And a net wealth creator.