Manufacturers that are planning to add production capacity over the next five years for products consumed in the U.S. plan to increase capacity in the U.S. more than any other country, according to new research released by The Boston Consulting Group (BCG). Almost one-third of U.S. executives at large manufacturers said they are most likely to add production capacity in the U.S. within five years to serve the U.S. market, versus 20 percent who said they are most likely to add capacity in China.
This is a reversal from two years ago, said BCG, when 30 percent of respondents said that China was the most likely location for new capacity to the U.S. market, while 26 percent said capacity would be added in the U.S.
The survey also finds that a growing percentage of U.S.-based manufacturing executives said they are already in the process of reshoring production work from China. Key reasons cited for reshoring included shortening supply chains, reducing shipping costs, access to a skilled workforce, to be closer to customers, and increased local control to drive quality and innovation.
The percentage of companies that are actively reshoring production increased by nine percent since 2014 and by about 250 percent since 2012. “This suggests that companies that were considering reshoring in the past three years are now taking action. By a two-to-one margin, executives said they believe that reshoring will help create U.S. jobs at their companies rather than lead to a net loss of jobs,” said BCG.
"These findings underscore how significantly U.S. attitudes toward manufacturing in America seem to have swung in just a few years," said Harold L. Sirkin, a BCG senior partner and a coauthor of the research, which is part of BCG's ongoing series on the shifting economics of global manufacturing, launched in 2011, in a statement. "The results offer the latest evidence that a revival of American manufacturing is underway."
BCG analysts believe the cost-competitiveness of the U.S. compared with China will continue to improve.
"The fundamental economic forces that are prompting many companies to reassess their global manufacturing footprint have not changed," explained Michael Zinser, a BCG senior partner and coleader of the firm's global Manufacturing practice, in a statement. "Given the big differences in wage growth and productivity -- and the greater attention companies are paying to total cost -- there is good reason to believe that the cost-competitiveness of the U.S. compared with China and many other major export economies will continue to improve in the near term."
Another driver behind the reshoring trend is lower costs and improved capabilities of advanced manufacturing technologies versus economies where the biggest benefit is low-cost labor. Fifty-six percent of respondents said that lower automation costs have improved their product competitiveness, and 71 percent said advanced manufacturing technologies will improve the economics of local production. Seventy-five percent will invest in additional automation or advanced manufacturing technologies in the next five years.
Despite higher automation, respondents believe reshoring will likely create new U.S. manufacturing jobs. Fifty percent of respondents said employment will increase by at least five percent over the next five years as a result of reshoring, and 27 percent expect a job increase of at least 10 percent.
However, the survey indicates that executives believe that the U.S. will account for a slightly lower portion of their companies' global production capacity compared with 2014. “The ratio of those projecting net job increases versus net job losses, while still two-to-one in favor of increases, also declined since the 2014 survey, which found a three-to-one ratio in favor of job creation,” said BCG.
Analysts believe the underlying drivers - beyond global macroeconomic volatility - includes other key concerns such as U.S. health-care costs, federal and local regulatory uncertainty, increases in the U.S. minimum wage, and unclear progress on tax reform. “Such concerns are causing companies to reassess their long-term manufacturing strategies,” said BCG.