“Reshoring” and “Nearshoring”: Why Manufacturing is Coming Back to the U.S. and Mexico

The Offshore Group posted the audio and transcript to a podcast entitled ‘”Reshoring” and “Nearshoring”: Why Manufacturing is Coming Back to the U.S. and Mexico’ which contained an interview with Harry Moser, director of the Reshoring Initiative.

The mission of the Reshoring Initiative is to “bring well-paying jobs back to the U.S. by assisting companies to more accurately assess their total cost of offshoring.”

Moser stated that the bulk of operations that will consider reshoring will be coming from Asia. He explained that this is due to Asia’s rapidly changing economy compared to North America.

“For example, Chinese wages expressed in dollars are rising up 20% to 25% per year vs. 2% to 3% here in the United States. Even though Chinese productivity is rising, it is doing so at nowhere near the pace to justify that huge wage increase. Therefore, their economics are rapidly declining relative to the U.S.”

According to Moser, many companies that sent work to China did not correctly assess the total cost of offshoring. These companies, and those who find China’s economic climate to no longer be advantageous, will find their way back to North America. Even some of Europe’s manufacturing could come to the U.S. depending on the direction of the Euro.

The Offshore Group asked Moser which types of products should be expected to consider reshoring.

“There is logic to what should come back. I would refer your listeners to a study done by Booz & Company. They will find that this international consulting firm identifies 30 different industries that are positioned to repatriate production when comparing the relative competitiveness of manufacturing in the U.S. and North America versus producing in China and shipping to the U.S.”

He identified automotive, metal, and machinery as the types of industries that are “in the tipping point” and that although it once made sense to produce these products in China, it now makes more sense to produce in the United States. Examples provided were GE bringing back water heaters and Wham-O bringing Frisbees, both back to the states.

“Bottom line, the best way to determine the total cost of manufacturing is to go to our website www.reshorenow.org and, for free, use the total cost of ownership tool that we have developed. This is the software that companies anywhere in the world can use to perform this analysis. That’s the way to do it…the estimator examines obvious factors like duties, freight, and other things that many companies consider in their analysis. Then it gets a little bit more complicated by factoring in costs from the suppliers, and the carrying cost of inventory en route.

A company can become quite inefficient when it has a long supply chain delivery. This affects quality, and IP risk and exposure to adverse effects occasioned by natural disaster. A long supply chain also can impact negatively on innovation…one of the reasons GE was able to bring the work back is because their engineers and manufacturing workers were able to work together to redesign the product and reduce the production of each unit by twenty dollars. By having the engineering and manufacturing close together it makes it easier for these types of things to occur.”

Another important point agreed upon by both Moser and The Offshore Group was the fact that even when companies move operations from China to Mexico, or anywhere in North America, it can benefit the United States. This is due to “when Mexicans produce something in Mexico, they buy machinery, supplies and components to do so from the U.S.” compared to when “a product is produced in China, there will be little direct economic, if any, gain for the United States. [Moser’s] first choice would be the U.S., then as a second choice Canada and Mexico as two much valued neighbors.”

To listen to the podcast or read the transcript, click here.