The predictions of a re-shoring trend may be greatly overblown.
I commented on this post over on Forbes: “Why Mass Employment in Manufacturing Isn’t Coming Back: It’s The Productivity“.
While it’s true that increased labor rates and perceived supply chain risks in China and other “low-cost countries” may prompt some manufacturers to “re-shore” production back to the US, the number of jobs landing on US shores will disappoint those reading the exaggerated re-shoring predictions in the western media.
As indicated in the Forbes post I referenced above, 100 Chinese jobs do not translate into 100 re-shored jobs, because productivity is higher on the U.S. side, and fewer workers are required to produce the same value. Also, as I commented, the re-shored worker is more likely to use components and materials pre-processed in China, where the corresponding Chinese worker would have used components and materials processed in-house.
One major driver of exaggerated and breathless re-shoring prediction was last year’s Boston Consulting Group’s report: “Made in America Again” stating that Chinese labor will reach cost parity with US labor around 2015, which will make Chinese manufacturing unattractive for export manufacturing. Maybe (who am I to contradict BCG?), but it seems the report is counting on some tenuous predictions:
- Overall labor costs in China won’t rise more slowly than expected as the manufacturing sector cools
- China’s on-going productivity advancement won’t proceed at a rate higher than expected, thereby offsetting labor costs faster than expected
- U.S. economic and regulatory trends won’t point to a future of increased overall U.S. manufacturing costs, thereby making it less attractive in the long run?
Now BCG has come out with a followup survey (as reported here) stating that more than one-third of manufacturing executives of large (over USD1B) corporations are “planning” or “actively considering” re-shoring production back from China. They surveyed 106 of those companies.
My questions (I don’t have the original report) would be:
- What does “planning” mean, here? Do you mean a contingency plan for moving production “just in case”? Does it mean an individual exec is running around with a power-point presentation to impress his colleagues at the next meeting? What is the level of commitment to the plan?
- What does “actively considering” mean? How active? How much consideration? In manufacturing we consider lots of options all the time, and we are active in doing so. It doesn’t mean we are close to taking a specific action.
- How much re-shoring has been planned/considered? All of it, or just a small part? Just the products which are most expensive to ship? Just enough to get some patriotic street cred?
- Results are based on a survey of 106 companies each with annual sales of USD1B or more. How representative is that sample?