July 24, 2014
Re-shoring has been a major topic in the news for manufacturers after reports that the difference in cost between manufacturing on American soil and exporting manufacturing to China now offers only a 5% price advantage in China’s favor. In fact, this trend of shifting relative value between countries has been a worldwide phenomenon and has also benefited to a slightly lesser degree the Netherlands, the UK, and Japan.
According to the Boston Consulting Group, “more than half of U.S.-based manufacturing executives at companies with sales great than $1 billion are planning to bring back production to the U.S. from China or are actively considering it” and as many as 21% are actively taking measures to achieve this goal. This represents a significant increase in the number of executives who have held this view since 2012.
The biggest factors leading to these changing opinions include:
- The rising cost of labor in China and other markets
- The shifting relative values of currencies
- The increasing availability of domestic energy
- Improved proximity to target demographic
- Better likelihood of protecting Intellectual Property Rights
- Greater likelihood of producing a higher quality product
There will be many benefits for the US should manufacturers follow through on their intentions of re-shoring work to the US, or near-shoring (moving factories to closer countries that still have a price advantage over the US like Mexico).
- More jobs for American workers
- Decrease in total cost of ownership for American factory owners
- Greater opportunities for growth and productivity in the following fiscal years in the US
- Lower environmental impact to be made from manufacturing
- Lower reliance on foreign sources of energy which may ultimately lead to greater interest in renewable and alternative energy sources
- Greater likelihood of addressing increasing consumer interest in higher quality, small-batch goods
In recent years, there have been many stories in the news about the idea of re-shoring. Whenever a story of this nature is published, there are always those who suppose that it is simply wishful thinking to suppose that we will see any significant re-shoring in the coming years. However in this case, recent statistics suggest that it is likely very reasonable to expect some re-shoring in the near future. In the past five years, major companies that have re-shored all or some of their operations include Peerless Industries, Intertech Plastics, Buck Knives, Sleek Audio, All-Clad Metalcrafters, Karen Kane, and other companies that have suggested plans to re-shore include Apple Computers, Dow Chemical, and Vallourec.