Offshoring gained plenty of attention over the years as companies made economic decisions to place portions of their business operations in countries around the world. Now, "reshoring" is the term of choice. Signs indicate some of those production efforts will return to the United States.
The State Science & Technology Institute provides an analysis in its weekly e-newsletter. Excerpts are below:
Earlier this week, General Motors announced it will build a software development center in Michigan, joining a number of companies like Google, Caterpillar, GE and Ford who all have revealed plans to make products in the U.S. previously outsourced or purchased overseas. Although the prospect of a reshoring trend and resurgence in U.S. manufacturing has been a topic of debate, there are still skeptics who say the evidence of this movement is highly anecdotal and the U.S. still faces a future of offshoring.
Research by the The Hackett Group, Inc. released in March revealed that U.S. and European corporations still will move an additional 750,000 jobs to other low-cost locations in the next four years contributing to a total of 2.3 million jobs in finance, IT, procurement and HR that will have moved offshore by 2016. However, the same report data projects that offshoring in these areas will begin to decline by 2014 and eventually cease, echoing a growing notion that although offshoring still can be an economical decision for U.S.-based companies, reshoring soon may be the better choice.
There is mounting evidence that companies are indeed bringing manufacturing back to the U.S. Professor Simchi-Levi from MIT surveyed 108 U.S.-based multi-national companies and found that 14 percent of the respondents definitely plan to reshore some of their manufacturing operations back to the U.S. A similar survey by the Boston Consulting Group released earlier this year showed that 37 percent of all U.S.-based manufacturing executives surveyed and 50 percent with revenues surpassing $10 billion were planning or actively considering moving manufacturing back to the U.S. from China.
In another report by the Boston Consulting Group, the group projected 10 to 30 percent of goods in industries like computers, electronics, appliances, and machinery will be reshored this decade and about three-quarters of those reshored likely will shift to the U.S., adding about $20 to $55 billion annually to the U.S. economy.
But what exactly is bringing them back home? One of the greatest factors is undoubtedly labor costs. The average wages in China have jumped 10 to 25 percent a year, reaching $4 to $6 an hour in some plants, making Chinese production less of a bargain once fuel and transportation costs are considered. Simchi-Levi’s MIT survey indicates that respondents are considering reshoring in order to bring findings to the market faster, respond more quickly to customer needs, save on transportation and improve IP protection.
Authors of a recent PricewaterhouseCoopers report emphasized the importance in fostering U.S. attractiveness by keeping energy costs low, maintaining a stable currency, training a skilled workforce and improving the tax and regulatory environment to support the reshoring trend, especially for the chemicals, primary metals and wood products sectors who may gain the most from reshoring. The reshoring movement is still in its infancy, but it is getting harder to deny the numbers suggesting a U.S. reunion with some of its offshored operations.