I interviewed Rosemary Coates who discussed New Reshoring Guidebook.
Great speaking with you again Rosemary. This is going to be another interesting topic. This one on Reshoring and what's involved with Reshoring. Can you first provide a brief background of yourself?
Thank you for inviting me. I appreciate it. I've been a Global Supply Chain Consultant for about 25 years and worked for a number of big consulting firms and also worked for SAP for 4 years, and all of that time doing global manufacturing strategy and global supply chain strategies. During the last 10 to 15 years I have been helping companies move production to China and to develop their manufacturing capability and sourcing capabilities in China. And then, about 3 years ago or so, during the 2012 US presidential elections, Barack Obama and Mitt Romney were both blaming China for American economic woes and really over simplifying what was happening in global manufacturing. I think at that point, some company executives, sat up and took notice and started to understand that because we had shifted so much manufacturing overseas we had put a big hole in the middle class in America, and we really should take a more serious look at bringing some manufacturing back.
Our clients started talking to us about Reshoring and as a result, we started helping with some global manufacturing strategies to bring manufacturing back to the US. Then about 2 years ago, I started the Reshoring Institute at the University of San Diego. The Reshoring Institute is focused on helping companies bring manufacturing back and teaching student interns about manufacturing. The students are learning about manufacturing at the Institute plus we are doing heavy research on Reshoring. We are helping a lot of companies understand the possibilities, in making a decision in favor of rebalancing their global manufacturing. By that, I mean leaving what manufacturing belongs in China, in China; and bringing some of that manufacturing back to the US for products that are sold in the US market. It's pretty exciting and Reshoring has really caught hold. There are a lot of companies that are considering Reshoring now. The statistics say: 54% of companies in America, over a billion dollars in revenue, are either Reshoring now or considering Reshoring. It's really a hot topic and global strategy.
Can you talk about what's involved with Reshoring and a little bit more about what it's about?
It's really evaluating the total cost of ownership and considering all of the costs in a manufacturing profile. For the past 20 years, we've been chasing low wages and low costs, whether that was China or Vietnam or Indonesia or Bangladesh. Instead of that, what we're helping our clients do now is evaluate their whole cost profile. That includes not only low labor cost and low production cost, but we also take into consideration things like logistics cost, import fees and tariffs and energy costs. Right now, energy costs in the US are very low so that helps with the economic decision about where to manufacture.
In the US there are manystate, regional and local economic development organizationsthat are offering incentives for companies that begin manufacturing in their areas. These kinds of incentives are really amazing. There are counties and regions in the US that are offering free buildings, tax holidays for 10 years, training credits for developing new skills, all kinds of incentivesthat create very favorable economic conditions for bringing manufacturing to new areas. There is a general feeling by executives that they have to be serious about developing manufacturing in the US to maintain the economy. The last thing we need is a weak economy in the US because that will affect the whole world.
How will this affect Chinese Manufacturers?
Well, that's a very good question. I've been doing a lot of public speaking in the last couple of years including a presentation on this topic in Shanghai about a year ago. It was all about how Reshoring affects Chinese manufacturers. There is an interesting parallel in China. I'm sure you're aware of “Made in China 2025,” a new policy that Beijing has initiated. This is an effort to bring manufacturing in China to a new level, to introduce more sophisticated, advanced manufacturing. So as we're Reshoring, some of that production back to the US, China is moving up the maturity curve, improving their own manufacturing for the Chinese market. It's a complicated issue in terms of how it will affect Chinese manufacturers but I think that in the long term, we're going to see Chinese manufacturing on the same level as you would see world class manufacturers in the US and Germany and in Switzerland. A lot of low-end manufacturing is going away. T-shirt production and foot wear is moving to lower cost countries such as Vietnam, Myanmar, Indonesia and Bangladesh, but the more advanced manufacturing is developing fast in China.
What are some of the pitfalls of closing operations in China and moving back?
I'm sure you're aware it's not as simple as just turning off the lights and closing in the door. If you're going to move production out of China, and I've been coaching my clients about this for a while, there are a lot of things to consider. You could pick up and leave, but if you do that, it's going to be a problem. First of all, you need to apply to the Chinese Government to exit China. If you don’t the Chinese government may never allow you to come back. You want to do everything that's legal and proper.
The second thing is, most of Chinese employees are on employment contract of some kind or another. When you stop operations and move, you have to buy out those employee contracts. That's a cost component of the evaluation that a lot of companies will miss.
Then, there are tools and dies and moulds that you may have paid for in China or shipped to China. You may be thinking these things are part of your IP or part of your own equipment. I have clients that thought they'd get their equipment back when production was over. But that's not the way it's thought of in China. Once you have introduced machinery or tools or dies into the production process in China, it’s considered part of the infrastructure, part of the capital goods, and its likely you will never get that back. The investment is gone.
Then as you know, when you stop production in China and the equipment and tooling and so forth is all still there, the Chinese manufacturer's likely to continue to make that product. They just aren’t making it for you. So it's likely to be branded as something else or sold in third world markets. You'll find that similar products are going to be competing with you. So there are a lot of concerns. We recommend you get help from a consultant and take an educated approach to extracting yourself from China.
And, thanks again Rosemary for sharing today on this important topic.
You're welcome. It was my pleasure and if anyone is interested, you can read more about the Reshoring Institute at www.reshoringinstitute.org.
About Rosemary Coates
President, Blue Silk Consulting and Author;
Executive Director of the Reshoring Institute