Top Ten Reasons to Reshore Jobs back to USA
The Pros and Cons—Offshoring and Reshoring:
1 Con-Lead time –Pro--Skilled Workforce
2 –Con--Quality/Rework/Warranty-- -Pro-- Image/Brand
3 –Con--Rising Wages and Currency Variation- -Pro Government Incentives
4 –Con--Freight Cost -Pro--Automation/Technology/3D Printing
5—Con-- Total Cost -Pro--US Energy Prices
6 –Con--Inventory -Pro--Redesign
7 –Con--IP Risk/Supply Chain Interruption Risk --Pro-Higher Productivity
8 –Con--Delivery --Pro-Research & Development
9 –Con—Communications --Pro-- Lean
10 -Green Considerations/Loss of Control --Pro--Ecosystem Synergies
The U.S. Multi Housing Advisors, usmha.com, recently published their findings on recent reshoring efforts, which appeared at reshorenow.org.
RESHORING: BRINGING JOBS BACK TO THE U.S.
There is much debate on both the extent and actual economic impact of companies that are reshoring jobs back to the U.S. As Morris Cohen, professor at The Wharton School, notes, “Reshoring isn’t a myth, but it’s not a phenomenon either.” While reshoring may not be widespread, where it is occurring, its impact on local economies is tangible in the form of jobs added. This impact is disproportionately represented in Southeast markets given the region’s relative low cost of doing business and emphasis on manufacturing.
COMPELLING REASONS TO RESHORE
Major companies that have reshored include General Electric (GE) Appliances, Ford, Whirlpool, and Wal-Mart. In 2009, GE Appliances transferred its water heater production from China to Louisville, KY while Wal-Mart is currently implementing its $250 billion “Made in America” initiative through 2023. According to the Reshoring Initiative, the most common issues that drive companies to reshore their jobs in the current economic climate can be seen in the reshoring iniatitvie’s top ten listed above.
Per the Reshoring Initiative, the highest incidence of reshored cases has occurred among Electronics/ Appliances/Components, Computers/Electronic,and Apparel manufacturers. The majority of jobs were reshored from China, Mexico, and India with fewer cases returning from Canada, Japan, Taiwan, Korea, Hungary, and Vietnam.
Reshoring would most benefit companies whose industries change rapidly, whose products’ market value do not justify shipping costs, and who are not employing offshoring as a key strategy for accessing global markets.
Overall, the reshoring option has become a compelling strategy for businesses as the average cost to manufacture goods in the U.S. is approximately 5% higher than in China, according to BCG’s August 2014 Global Manufacturing Cost-Competitiveness Index. Factors contributing to this trend include: fracking depressing oil and gas costs, rising wages in China, stagnant wages in the U.S., the weak U.S. dollar, and increasing productivity in the U.S.
MIXED REVIEWS OF RESHORING
An estimated 60,000 manufacturing jobs were added to the U.S. economy in 2014 as a result of foreign direct investment and reshoring, per the Reshoring Initiative, while only 30,000 to 50,000 jobs were offshored. However, The Institute for Research on Labor and Employment (IRLE) projects that offshoring and domestic outsourcing will expand as the economy continues to grow. The reshoring process also includes major hindrances such as: the extensive analysis required to decide to reshore, the complicated execution process, a skilled labor force shortage in the U.S. (particularly in STEM fields), and the costs associated with conformance to U.S. regulations.
The overarching takeaway of recent trends is that the operations decisions that companies are making have become more complex than what occurred in the 2000s, when companies in certain industries offshored jobs seemingly en masse. The current calculation extends beyond the “narrow quantitative-cost measures” that companies had previously relied upon per PWC’s, “Going beyond reshoring to right-shoring” report. Companies are increasingly executing a mixed strategy of reshoring select operations while offshoring others, thereby mitigating the economic impact of reshoring. As Morris Cohen, professor at The Wharton School, notes, “Reshoring isn’t a myth, but it’s not a phenomenon either.”
However, in the specific cases where reshoring is occurring, the jobs added to local economies does have a major impact. More importantly, this impact is disproportionately represented in Southeast markets given the region’s relative low cost of doing business. According to Area Development’s survey of site selection consultants, the top 10 states for doing business in 2015 rank in order as follows: Georgia, Texas, South Carolina, Tennessee, Alabama and Florida (tied for fifth), Indiana, North Carolina, Louisiana, Ohio, and Kentucky.
This ranking takes into account the states’ overall cost of doing business, regulatory environment, labor climate, infrastructure, and global access. Per their Overall Infrastructure & Global Access ranking, Tennessee and Georgia rank as second and third. As a result of the business climate in the Southeast, reshoring is prevalent in this region.
Overall, while reshoring may not be the big boon for the U.S. economy as some have touted, it certainly is a positive indicator for job growth in the Southeast.