You have to be careful about drawing long-term conclusions from the constant stream of surveys about manufacturers that might or might not be considering a move from China to the U.S. For one thing, the bulk of research is sharply contradictory. The findings depend on who’s being asked, and when. And secondly, announcements of reshoring by a handful of high-profile companies don’t necessarily signal a larger trend.
Start with the positive news – from an American perspective, at least. General Electric is spending a reported $800m to revive its massive Appliance Park in Louisville, Ky. The complex is turning out water heaters that used to be made in China, refrigerators previously sourced in Mexico, and dishwashers being produced in the U.S. for the first time. Meanwhile, Apple – the poster child for long-distance outsourcing – is investing $100m in domestic production, including the manufacture of some Mac computers in the U.S.
Other companies reportedly jumping on the reshoring bandwagon include Whirlpool, Otis Elevator Co. and Wham-O Inc., maker of the iconic Frisbee. In a survey from last year by the Boston Consulting Group, more than a third of respondents said they were either planning on bringing back production to the U.S. from China, or were considering it. All were manufacturers with sales of at least $1bn.
More recently, a report by Panjiva, the provider of global trade data, threw a dash of cold water on the reshoring fire. Surveying more than 150 sourcing professionals, it found that 75 percent of buyers were already acquiring at least a portion of their goods from the U.S. But nearly half weren’t making domestic sourcing a priority. And more than a third, when asked for their views on the long-term outlook for manufacturing in the U.S., predicted either a decline or stagnant activity.
To the extent that reshoring is a reality, what are the reasons? The most obvious is the steep increase in Chinese factory wages. Coupled with the headaches that come with sourcing product thousands of miles from intended markets, that trend is making it less economically viable for U.S. companies to produce their goods in China.
One might think that the recent spate of stories about horrendous working conditions in Asian factories would further cause American manufacturers to rethink their dependence on that part of the world. Judging from the latest Panjiva survey, one would be wrong. Only 4 percent of buyers cited the plight of overseas workers as a reason for increasing production in the U.S. Never mind the deadly fires in Bangladesh garment factories. Business decisions are still being based on, well, business.
A snapshot can be out of focus. Panjiva chief executive officer Josh Green admits that the latest survey – Panjiva’s first to focus on U.S. manufacturers – offers a “muddled” picture.
“To date,” he says, “we’ve seen a lot of energy going into initiatives to revitalize manufacturing in the U.S. But when you look at actual movements, it’s hard to say that the needle has moved significantly.”
Nevertheless, insists Green, the survey offered “some pretty clear insights” – at least when it comes to highlighting companies’ honest assessment of America’s strengths and weaknesses.
Respondents were definitive about their chief reason for making product in the U.S.: faster turnaround and delivery time on orders. “That’s a real competitive advantage that is not going away,” he says.
Green was surprised that sourcing executives didn’t view poor factory working conditions as a strong driver of reshoring. He doesn’t chalk it up to a lack of empathy, however.
“My read on it is that the U.S. is not considered a viable alternative to those emerging markets where working conditions are the worst.” Green suspects that companies would rather invest more in improving the lives of workers overseas, or shift production to other low-cost markets that can supply labor-intensive industries.
Respondents to the Panjiva survey did cite cost as a major reason for reshoring, but Green doesn’t believe the U.S. can easily take the place of countries where workers earn a fraction of American wage levels. “It’s hard to imagine that the U.S. is going to be cost-competitive, except in a few narrow areas,” he says. Domestic producers would be better off focusing on their inherent strengths of faster turnaround time and greater proximity to end markets.
Enlightened executives know that “cost” means more than a factory worker’s hourly wage. As many businesses discovered after stampeding to China, the longer distances created gaps in communication and the greater likelihood of supply interruptions. In response, companies have had to build up buffer inventories close to end markets, and rely on high-priced expedited transportation to avoid stockouts at the store shelf. Then there’s the panoply of post-9/11 regulations, burdening importers with additional reporting and visibility requirements when dealing with overseas suppliers.
Companies need to focus on revenue, not just cost. “If you can turn goods around faster, it has the ability to drive higher top-line sales,” says Green.
Additional factors are working against the reshoring trend. One is the need for a deep “ecosystem” of vendors that are located close to the point of production. Chinese factories are supported by multiple tiers of suppliers, all the way back to raw materials. Such a setup is tough to replicate in another hemisphere.
Still, says Green, there’s hope for U.S. manufacturing, particularly in those sectors that rely on rapid response to changing purchase patterns. Apparel – or at least its “fast-fashion” component – could well find a foothold in the U.S., despite that industry’s historical reliance on the cheapest possible wage rates.
High technology, with its heavy use of automation, could also be an area where American manufacturing can compete, although the net impact on employment levels would be less. In this respect, we could be in for a bitter irony: jobs returning to the U.S., but not being done by humans.
According to this snapshot, at least, the outlook for U.S. factories isn’t terribly encouraging. Based on Panjiva’s data, we shouldn’t be looking for “a broad-based resurgence that mirrors the type of manufacturing we had half a century ago,” says Green. History is not about to repeat itself.
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Keywords: supply chain, supply chain management, international trade, manufacturing reshoring, U.S. manufacturing, supply chain planning