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5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers

reshoring movement

There is no question, as more and more stories about the reshoring movement bubble up to mainstream news, that the state of global manufacturing is in flux and that long-held assumptions about the costs and expenses in manufacturing should no longer be considered accurate. Due to a variety of factors including cost and availability of materials, climate change, and disputes on the rights of workers, American manufacturing may soon be a far more American enterprise than it once was. In fact, the US has now surpassed all countries but Mexico, India, and the Netherlands in cost savings potential for manufacturers.

Several years ago, President Obama is reported to have asked Steve Jobs what it would take to bring lost manufacturing jobs back to America. Steve Jobs is said to have responded that there was no way that those jobs were ever coming back. At the time, Jobs’s assertion was based on good evidence: it had long been more economically efficient to outsource manufacturing to other countries, and there was no indication that that would change. Now, due to factors that Jobs would have been unable to foresee, manufacturing now looks very different from what it was just a decade ago:

1.)    The changing status and laws on labor in other countries has drastically impacted the costs of exporting labor, adding to the reshoring movement: In past years, China offered significant savings over American factories because labor in China was so much less expensive. However, since 2005, wages grew at a much higher rate for Chinese jobs than for American jobs. Over the course of the last decade, this along with the growing value of the yuan has led to an increase in manufacturing costs in China of 187% compared to an increase of only 27% for the cost of American manufacturing. Throughout the rest of Asia, wages increased by an average of 7.1-7.8% between the years 2000 and 2008. As a result, wages throughout Asian markets now match or exceed American wages as the market crisis actually produced a drop in average wages for factory employees by 2.2% since 2005.

reshoring movement automation 300x200 5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers2.)    Affordable options in automation even out the playing field among American manufacturers: Recently, Bill Gates noted that the proposal to increase American minimum wage would likely cause many manufacturers to rely more heavily on automation. As wages likewise rise in other countries, manufacturers turning away from offshoring and joining the reshoring movement can find significant cost savings by investing in automation. And in terms of productivity, investing in automation saves manufacturers money within the first year as a single machine can increase productivity by as much as 70% while only costing as much as a single employee’s salary for one year. Regardless of the concern that automation costs jobs, the savings potential of the technology nearly necessitates that manufacturers consider it as a valid option. This trend of “botsourcing” has already made some major impacts on the world of manufacturing: Foxconn recently announced their intent to join the reshoring movement by investing $40 million on a largely automated facility in Pennsylvania, while Amazon recently spent $755 million to purchase Kiva Systems, a manufacturer of warehouse robots.

3.)    Environmental standards and energy costs change the expectations placed on manufacturers: Because of the new availability of shale in America after 2005, it has become cheaper for American manufacturers to depend on energy produced here at home. According to the most recent PwC report, as many as 87% of CEOs in industrial manufacturing consider the environmental impact of their operations to be a point of major concern, while 70% also stated that volatile energy costs represented a serious issue. While in some ways, this simultaneous interest in cheap energy as well as environmental protection is contradictory, each of these inclinations would make manufacturing at home in the US a better choice, literally fueling a large portion of the reshoring movemet. Locally produced energy has become cheaper and so manufacturers can eliminate the environmental cost of transporting goods overseas. In addition, in the US manufacturers face more stringent requirements from the Environmental Protection Agency, which means that operations performed at home are more likely to correspond to accept regulatory measures. While in the past these strict requirements may have led some manufacturers to move labor overseas, the increasing number of manufacturers who are aware of the importance of curtailing the environmental impact of their operations may mean that they are less deterred by the requirements of the EPA to keep operations in the US.

4.)    Lacking regulations on intellectual property rights and on worker safety impact how American manufacturers invest: After last year’s Savar factory collapse, many consumers and legislators called for improvements in working conditions and safety regulations for workers in factories supporting outsourced American operations. While some manufacturers continue to resist legislative intervention in their safety regulations, many manufacturers were motivated to change the ways in which they select factories and materials providers. Similarly, as many as 58% of manufacturers say that the lack of enforcement of intellectual property rights in China and other countries is a major detractor for doing business in those countries. For both American consumers and manufacturers, lack of enforcement of these kinds of regulations are often seen as unacceptable, and like most great social causes which started in movements by doing good, so is the reshoring movement.

5.)    Both consumer and supplier opinions are evolving: According to marketers today, customers are now likely to express a greater interest in purchasing goods that were made locally, by hand, on a smaller scale, with lower environmental costs, and in ways that are more sustainable for the American worker. In fact, as many as 80% of consumers say they would pay extra for goods made in America. Whether or not some may find these ideas too trendy or reliant on buzzwords, many manufacturers are paying attention. In fact, lots of manufacturers agree with consumers that goods made in this way are more likely to be of higher quality (consider Toyota’s controversial decision to replace robots with more trained craftsmen). This has led to the concept of “artisanal manufacturing,” a practice that, if more broadly embraced, could lead to significant decrease in the environmental impact of manufacturing, as well as to an increase of jobs based locally in the US.

Manufacturing in America as opposed to manufacturing in China now only represents a 5% difference in cost, a massive decrease from price differences in the past. For those manufacturers continuing their operations overseas, developing financial changes at home and aboard coupled with the added cost of transporting goods to and from overseas locations will likely make the value of investing in reshoring and joining the reshoring movement a practical financial reality.

Other factors to consider in the discussion of the Reshoring Movement

reshoring movement reasons for reshoring e1400507567770 5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers

Companies’ reasons for reshoring. Credit: Manufacturing.net

Though it seems likely that the reshoring movement is more than just a fad (as the numbers suggest many major names in manufacturing are already reshoring or “near-shoring” operations to Mexico and other countries and territories), there are other factors that are worth considering when gauging what this trend means for the future of industrial manufacturing.

  1. The controversy over the legality of fracking: The recent availability of American shale has been a driving factor in the switch to American energy. However, as disputes over fracking and related extraction methods continue, it’s unclear how available or affordable these resources will remain.
  2. Some manufacturers resist strict regulations in America: As noted above, while many manufacturers respond positively to regulations meant to improve safety and environmental standards, some manufacturers resist these changes because they usually result in extra expenses. Re-shoring work to America means manufacturers are more likely to face these kinds of regulations.
  3. Questions over the wisdom of an excessively consumerist culture: After the collapse of the Savar garment factory, critics wondered whether or not American consumers would be willing to give up their ready access to cheap, disposable clothing to ensure that no such similar accidents occurred in the future. The numbers indicate that many people continue to demand these cheap goods, regardless of the true human cost. The increasing demand for small-batch, high-quality goods will be a boost for local production, but could also be a step towards the popularizing of a more minimalist lifestyle that places a smaller demand on major manufacturing operations. However, as the greater effort invested means a more expensive product, there could be some type of evening-out for any profits lost.
  4. The rising power of China and the uncertain value of the American dollar: As many have noted, China is a developing world power with the potential to impact manufacturing and consumption on a global scale. Coupled with the fluctuating value of the American dollar over the last years, it is unclear where American manufacturers will develop next to the developing manufacturers of China. According to some, it is no longer applicable to think of manufacturing as something to be concentrated in certain areas. This changing global picture may underscore this point.

What are your thoughts on the reshoring movement? Good for the economy? Only a short term buzz word? Here to stay? Chime in in the comments below!

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 5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers

Rachel Greenberg

Marketing and Technical Writer at Automation GT
Rachel Greenberg writes marketing and technical content for Automation GT in San Diego, California. She holds a degree in English from Johns Hopkins University.
 5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers

@AutomationGT

California-based manufacturer of meticulously designed machines for fields including pharmaceuticals, medical devices, biotechnology & renewable energy.
New thoughts on an old topic: will smarter #robots mean fewer jobs? http://t.co/QbtcPM5kFj - 1 day ago
 5 Financial Factors Driving the Growing Reshoring Movement for American Manufacturers

There are 8 comments .

Sandy Montalbano —

We think reshoring is here to stay because it is important to the America economy.

Reshoring is happening because overseas locations are becoming less attractive and reshoring is gaining momentum because it is helping U.S. manufacturers recover from offshoring’s poor quality, trade secret thefts, supply chain disruptions and lengthly delivery times – all while staying cost competitive.



The most important action is to focus as much on reducing imports as increasing exports. Think of it this way, another word for reducing imports is reshoring.

Our trade deficit in goods equals about 40% of our manufacturing output – so if we balance the trade deficit by substituting domestic production for imports, we will increase manufacturing employment by 4 million jobs and overall employment by 8 million jobs due to the manufacturing multiplier effect.

In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s freeTotal Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm



Only the Reshoring Initiative tracks reshoring in detail including: companies, jobs, investments, reasons, countries, states, etc. We document what’s actually happening in the trend.

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W.H. Meanor & Assoc.

This is a well done article and adds to a series of articles I had done regarding the changes in manufacturing. The trend continues the US will be as cost effective as China for manufacturing which is huge. This has a lot to do with the advances in manufacturing, with intelligent manufacturing technologies coming on board. We will see a continued trend of companies re-shoring businesses back to the US or near-shoring them closer as well because of these advances. Even the consumer tastes or changing as mentioned in the article. I believe I read where people are now preferring to buy fewer clothing articles at a higher price than a lot of lower cost items. This is a very well done article.

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Rob Duval

The points raised in this article mirror exactly what I’ve seen in the electronics manufacturing industry over the past decade and a half.

I would add two thoughts to the discussion. Back in the early 90’s when I got into the industry, OEMs would order what I now call speculative quantities. Often, this was done to achieve an economy of scale, and to get better volume pricing. Sales departments would look at their utilization for the previous year to make a determination of how many widgets to order for the upcoming year. If they sold 500 last year, they might order 750 for the coming year, and tell their sales people to get out and sell the extra 250. After the pull-back in the early oughts, I noticed a distinct shift in this philosophy. Around 2005 or so, I saw companies beginning to order to demand. If they needed 100 pieces, they ordered 100 pieces. No speculation on higher quantities. The supply chain changed subtly, allowing the risk to be pushed down-stream. Contract manufacturers were able to get material cost savings in different ways, and helped to lean out the supply chain. And OEMs extended their lead times allowing orders to be placed to demand. By being able to provide on-demand services like this, a segment of the market was able to shift their procurement strategies. It was no longer cost effective to procure quantities that were orders of magnitude higher from off-shore sources, only to be stuck with inventory on the shelf at the end of the year.

Secondly, as the 2008 recession hit, manufacturing companies were forced to down-size their workforce due to economic forces that were beyond their control. I cut my workforce in half at the shop I was running at the time. However, over-all demand remained pretty flat (on a per-unit basis). To meet this continued demand, and downward price pressure, efficincies needed to be found in the process. Companies that could afford it invested in process automation, companies that couldn’t afford the capital equipment costs leaned their operations. Employees that were retained through this down turn worked just a little bit harder (likely from a concern of losing their jobs). Operations Managers discovered that a leaner, more motivated workforce along with additional process automation efforts, and better process planning, were able to sustain per-unit manufacturing levels. My personal experience was an increase in unit and dollar volume sales, with a halved workforce.

Unfortunately for the labor market, leaner operations did not allow for a rapid re-hiring of employees once the market started to turn.

I believe both of these factors have contributed to the re-shoring process, and will continue to have a large influence in how companies are able to meet the needs of their customers.

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    Adam Robinson

    Rob, thank you so much for taking the time to leave such a great explanation of the time period and your thoughts on reshoring. Your comment here is one of the most frank and common sense explanations of the conundrum and issues manufacturers face(d) with various economic and technological forces coming at them from all sides. Thank you and I look forward to your future comments. By no means has anyone got it figured out, but there surely is no lack of effort to do the best we all can to sustain. The labor issue is one that will be the biggest issue towards sustainability. Hopefully, money contributed to the GDP by manufacturing creates jobs in other sectors, but I do not think we will see manufacturing employment at the levels we saw in late 70s early 80s again.

    Reply »
      Rob Duval —

      Adam,

      I would agree. While I do expect the volume of manufacturing to grow in the US in the mid-term, I don’t expect that the growth will be a panacea for employment/wage growth. I doubt that we will ever return to the employment levels of the 70s/80s. I wouldn’t even expect the levels of the late 90s.

      It’s an interesting paradigm. On the employment side, everyone wants higher wages, more skilled workers, etc; but, on the consumer side, we all want to pay the lowest price possible. The two can not co-exist. As an American manufacturer, if the market forces me to raise employee wages, I am forced to raise sell prices accordingly…which can end up pricing me out of some opportunities. That wage growth is, as detailed in the article, part of the driving force of moving manufacturing out of China.

      I suspect that another low-cost labor center will emerge within the next decade, that will drive another wave of off-shoring. I’m torn as to whether or not I think it will be in Africa or in South America, though, as I believe both continents are prime for industrial development.

      Reply »
Brian Langendoen —

I certainly agree that the China labor rate trend is a major factor, especially around the Shenzhen region. But China saw this trend early on, reacted by investing in infrastructure improvements in the interior where labor rates are lower, and encouraged factories to invest in these areas. In addition, as indicated in the article, many of the larger contract manufacturing factories have responded with a huge increase in robotics. Efficiency & quality is high, allowing them to remain competitive, at least for now. One factor also to consider is that China is still currently the “worlds factory” and as such, the entire supply chain for whatever product is going to be built is likely already in place and local. I think these are major reasons why they will remain in the picture for quite some time. But watch out for Vietnam, Malaysia, other Asia countries hungry for the investment and with labor rates that are now favorable. I have been in manufacturing operations for 40 years now, and traveled to China more times than I can count. They aren’t going away anytime soon.

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