It's Too Soon to Put Reshoring on the PedestalIt's Too Soon to Put Reshoring on the Pedestal
August 28, 2015
A few years ago, reshoring roared onto the scene as the next great movement in manufacturing, timed with the sector's well-publicized role with helping the US crawl out of the deep recession. The manufacturing renaissance was hot in the news and among politicians trumpeting jobs. But now it seems some stark realities have hit.
After much-heralded calls by major US brands to bring offshored manufacturing back home during reshoring's initial halcyon days, announcements have been less frequent -- though at press time, the Reshoring Initiative announced a new accelerative program in partnership with Walmart's ten-year pledge to buy $250 billion in US manufactured goods by 2023. Reshoring is still happening, for sure, but at the same time stories of companies' difficulties in returning their manufacturing to US soil have surfaced in the business press.
Perhaps having backed off from the overly aggressive offshoring pace of the 1990s and 2000s and hearing about how China's labor wages have skyrocketed have given us an overly confident picture of reshoring, because at best, it has had minimal impact on US manufacturing growth based on the numbers so far.
Harry Moser, a former machine tool industry executive and founder of the Reshoring Initiative, has undoubtedly educated many on total cost of ownership analysis, highlighting the hidden costs of outsourcing, but he also has remarked about reshoring's challenges at many manufacturing and business forums. Near the top of the list is the not-so-simple reconfiguring of massive supply chains, networks, and infrastructure for both materiel and people. For its part, the Reshoring Initiative has ongoing efforts to help companies with US supply efforts, which are now coordinated with Walmart's own guidance on US manufacturing resources.
The conversation around reshoring, however, inevitably winds up about jobs. Reshoring is supposed to bring work back into American hands and reenergize the US manufacturing labor force. It simply hasn't. According to multiple accounts, about 80,000 offshored manufacturing jobs have been returned to the country in the past three years. That's hardly a rousing number, although the Reshoring Initiative in a recent report said 60,000 manufacturing jobs were reshored or generated from foreign direct investment in 2014 - the most to date.
Still, do not expect reshoring to be a big jobs driver or an impactful trend soon. In a press release, the Reshoring Initiative called Walmart "the largest force driving reshoring," calculating that the retailer has added about 4,600 US manufacturing jobs to date - a far cry from the 300,000 expected to be generated by its decade-long domestic commitment. Despite that Chinese wages have risen rapidly, they are still a measly 12 percent of average US wages, according to the Information Technology and Innovation Foundation (ITIF). And the big energy cost advantage the US now enjoys has not resulted in gangbusters reshoring. Energy costs remain low on the totem pole of reasons cited for reshoring, and, if anything, the crash in oil prices has made overseas freight transportation easy to swallow. The ITIF says that for 90 percent of the manufacturing sector, energy costs make up less than 5 percent of manufactured goods' shipment value.
MORE FROM DESIGN NEWS: More Must Be Done to Overcome the Challenges to Reshoring
After the heartwarming declarations in recent years, the cold fact is that companies are realizing they can reshore only if it makes economic sense. Why uproot the supply chains and infrastructure they have long established in foreign countries, even if the products could be produced cost competitively here? Many firms found out that patriotism and brand image weren't enough, after conducting their due diligence and operations analyses, while those that came back encountered difficulties, which are well documented in the business media.
In plenty of other reshoring cases, overseas manufacturing was brought back to be automated for greater cost efficiency and productivity. Almost all reshoring is from low-wage countries, and the business end-game is still about suppressing costs and being profitable. When polled, American consumers tell you they want to buy Made in USA, but their real choices lie where their cash goes. Cheaper imported goods continue to take more expensive American labor out of the reshoring feasibility equation.
The majority of the manufacturing that has gone overseas in the past couple of decades (and which continues to do so) has been commodity work. While plenty of manufacturing and business surveys signal a strong notion to reshore it, does it make a whole lot of sense to bring that type of low-grade, low-value work back? Reshore the high-tech, high-value goods that shouldn't have left in the first place.
Calling the reshoring trend a myth - as some have -- might be extreme, but reshoring is a misguided exercise if it continues to try and resurrect the past. With so many large-scale efforts now focused on advanced manufacturing and developing a high-tech industrial workforce for the future, in the acknowledgment that they have greater value to a nation's prosperity, looking to reshoring as a great savior might be premature.
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