The end of a year is always a good time to think about what trends took place, or continued to take place, over the past year. In looking back at 2013, one trend that stands out for me, is the continued discussion about reshoring as companies increasingly reshore or nearshore operations.
For instance, it was noted that an increasingly productive U.S. factory sector, leveraging cheaper energy and relatively lower wages, is expected to pull production from leading European countries, Japan and China. Within six years, that production will capture $70 billion to $115 billion in annual exports that would have come from those countries. Furthermore, together with “reshored” manufacturing from China, where rising wages are undermining its competitiveness, the manufacturing shift could add from 2.5 million to 5 million jobs in the country, according to research from the Boston Consulting Group.
What I also found surprising is that given a choice between a product made in the U.S. and an identical product made abroad, 78 percent of surveyed Americans would rather buy the American-made product. Those people are interested in retaining manufacturing jobs and keeping American manufacturing strong in the global economy. They also have concerns about the use of child workers or other cheap labor overseas, and believe American-made goods are of higher quality, according to Consumer Reports.
Those consumers will pay more for American-made goods as well. More than 60 percent of all respondents in the Consumer Reports survey indicated they’d buy American-made clothes and appliances even if those cost 10 percent more than imported versions. Furthermore, more than 25 percent of the respondents said they’d pay at least an extra 20 percent to purchase American-made products.
With all that in mind, I was interested to see a recent manufacturing.net article which explained that electronics manufacturers are increasingly interested in reshoring operations because China is becoming a far less attractive manufacturing option. Indeed, Wilson Lee, director of product manufacturing for Newark element14, notes in the article that, the “new normal” of manufacturing for OEMs in the electronic components industry has been to balance offshoring with reshoring. The case is even stronger for new product initiatives (NPIs) or technologies in which total acquisition costs can be significantly reduced.
“In my opinion, the complexity of new technologies is minimized if there is a business-to-business understanding of the total cost of acquisition,” Lee says in the article. “In terms of electronic components, off-shoring presents more opportunities for miscommunication and misinterpretation. Furthermore, valuable time is eaten up as products are shipped to and from various regions of the world.”
In the end though, the decision to move operations—whether reshoring or nearshoring—is complicated and there are a great number of factors to consider. Of course, it always helps when states will offer tax and other economic incentives. While those incentives and the overall cost of labor are important, other factors should be equally considered and weighed accordingly.
Writing recently in Supply Chain Management Review, Rosemary Coates, president of Blue Silk Consulting, listed some key variables that should be considered in determining the costs and feasibility of reshoring some production from China. Chief among the noted variables are:
- Innovation—What product innovation is needed for the U.S. market?
- Automation—Would you be able to use automation to reduce labor costs through use of new technologies such as 3D printing and robots?
- Localization—Could basic products be manufactured in China and then have final assembly for the U.S. market accomplished here?
- Supply base—Is your supply base all located in China? If so, what work needs to be done to reestablish your supply base in the U.S.?
- Incentives—What tax and other incentives are being offered by local, state and federal governments?
- Skills—What skills will be needed for U.S. production and where will you get those skilled workers?
I’m interested in what you think. What other factors should be thoroughly evaluated when considering reshoring or nearshoring? Also, do you expect reshoring, or nearshoring, to gain additional traction next year? What other trends do you expect to see next year?
Happy New Year.