Although the pace of U.S. reshoring decelerated in 2015, one manufacturing expert says the trend is far from standing still.
“Repeated surveys by Boston Consulting Group, Plastics News/Nexant, Alix Partners and Medical Design Technology show that the trend is increasing or at least that commitment to reshore is increasing,” Harry Moser, founder and president of the Reshoring Initiative told EPS. “I spoke to AGMA and ABMA (gear and bearing manufacturing associations) in May 2015. In a poll of attendees, 54 percent had reshored or their customer had.”
Moser and the Reshoring Initiative do not entirely disagree with A.T. Kearny’s findings. “Kearney claims the number of reshoring cases per year is off 70 percent from 2013 to 2015 projected,” Moser said. “Our database shows a smaller 40 percent reduction but reshoring still at about twice the 2011 level.” A higher U.S. dollar has hurt the reshoring trend, Moser added. “The decline in the rate of reshoring, which peaked in 2013, coincides with the dollar’s rise that started in mid-2014. Before the 20 percent to 25 percent increase, the dollar was already too high, judging by our then approximate $500 billion trade deficit.”
The Reshoring Initiative said the inconsistency between the declining number of reported cases and the consistently growing survey results may be due to:
- Reshoring is now such an accepted, proven, mainstream trend that companies and journalists are no longer mentioning it.
- Published reports of reshoring are almost always about OEM cases. Supplier cases are just orders, rarely documented as reshoring.
“I suspect we are going through a digestion phase in which the OEMs are simplifying their supply chains and sourcing more domestically,” Moser added.
Statistics aside, Moser and other proponents of reshoring say it is the nation’s best interest to grow its manufacturing base. “From a longer-term perspective reshoring cannot ‘be over,’” Moser said. “The world will not allow a $0.5 trillion U.S. trade deficit to continue indefinitely. If we do not fix the problem in the next 5 to 10 years, the U.S. dollar will fall dramatically, making reshoring and [foreign direct investment] FDI easy, but with a smaller U.S. market to serve,” he said.
From the jobs standpoint – which is the focus of many reshoring initiatives -- foreign direct investment is not a negative for the United States. “FDI and reshoring are essentially the same phenomenon,” Moser said, “just parent company headquarters are in different countries.” In both cases, he said, the company decides it is more profitable to serve the U.S. market from a U.S.-based factory instead of from a foreign factory.
Foreign companies have come to the same conclusion many offshore U.S. companies have: manufacturing product closer to the point of consumption can be cost-effective. U.S. companies set up manufacturing facilities in China in part to take advantage of low-cost labor, but also to be able to sell to the growing middle class that is emerging in the region.
About 200,000 manufacturing jobs have been brought to the U.S. from offshore in the last 6 years, according to the Reshoring Initiative’s calculations. That job gain is the result of both new reshoring — the return of manufacturing work that was previously produced offshore — and FDI in the manufacturing sector. It also represents about 23 percent of the total increase in U.S. manufacturing jobs since the low of 11.45 million in February 2010. About 12.32 million Americans are now employed in the manufacturing sector. In fact, the Reshoring Initiative’s research shows that more manufacturing work is now coming to the U.S. than leaving.
Moser points to total cost of ownership (TCO) as a tool to evaluate the pros and cons of offshoring. TCO measures factors other than labor costs and ex-works prices of products such as packaging, import-related fees, intellectual property risk, travel and freight. “This gets into intangibles and things that you have to guess at, but guessing is better than using an incomplete number,” Moser said. “But it is hard to change the habits of some business people.”
Electronics manufacturing in particular shouldn’t be overly impacted by labor cost. Most electronics manufacturing services (EMS) providers are highly automated, Moser and others point out. Labor costs should be low enough so that manufacturing in the U.S. makes sense. “The savings on proximity should be able to offset wage differentiation,” Moser said. “Of all industries that could manufacture in the U.S., EMS seems to be a logical one.” The Reshoring Initiative points to several case studies in which EMS companies reshored or remained onshore, including Ennovea, Suntron/ZeeVee, Tornik LLC and Zentech.
A.T. Kearney’s Reshoring Index does not actually measure reshoring, Moser said. “It essentially uses the trend in imports to imply a trend in reshoring.”
“It is clear that about 25 percent of what is now offshored would be economically reshored today if companies used TCO instead of wage arbitrage or PPV (purchase price variance) to make sourcing and siting decisions,” Moser added. “A.T. Kearney would better serve its clients and country if it helped educate the companies rather than discouraging them.” (A.T. Kearney's response can be found here.)
(The Reshoring Initiative offers tools and resources to help companies make supply chain sourcing decisions. The Reshoring Initiative’s TCO Estimator uses advanced metrics to help determine the total cost of offshoring.)