Everyone knows the short view on manufacturing in the United States…that it’s in a long state of decline. In fact Mark Vitner, managing director and senior economist for Wells Fargo Securities, noted that even when the news for manufacturing is positive, such as in the increased production of capital goods for export, that manufacturing tends to be more capital intensive rather than labor intensive and doesn’t produce as many jobs.
One trend gaining an increased amount of attention is the return to the United States of manufacturing that had been shifted to what were perceived to be lower labor cost locations, such as China. The “reshoring” topic generated some insights and discussions during a panel at the International Economic Development Council annual conference in Charlotte.
Rapidly rising labor costs in what had been considered low-wage countries such as China, lower real estate and construction costs in the United States and rising costs for transportation have prompted some companies to bring manufacturing operations back to the United States from overseas locations.
More important, noted Barry Johnson, executive director of the U.S. Commerce Department’s SelectUSA initiative, a number of other factors beyond labor and transportation costs often are overlooked in the decision-making to move manufacturing off shore, including quality control issues, the disruption that occurs when engineering and development are separated physically from manufacturing, and the often lax oversight over intellectual property in many foreign nations.
“The calculus used to arrive at offshoring decisions is often incomplete,” he said.
Several major companies such as GE in Louisville and Caterpillar in Victoria, Texas, have reshored major manufacturing projects back to the United States.
Mark Barbash, the former chief economic development officer for the Ohio Department of Development, said there is nothing beyond anecdotal evidence right now to suggest what might drive reshoring decisions.
Many businesses are reluctant to be “second-guessed” on what drove their offshore decisions in the first place, and Barbash noted that research has shown that 60 percent of manufacturers use “rudimentary total cost models” and ignore 20 percent of the hidden costs of offshoring.
Barbash said economic development organizations need to incorporate reshoring strategies into their overall economic development programs. He cited work being done by groups such as the Reshoring Initiative and encouraged economic development organizations to work with such groups to “understand what is not being measured.”
“We make the case on value and not on cost. There is more to this decisions than cost,” he said.
