It was at the International Economic Development Council’s 2011 meeting in Charlotte that the reshoring phenomenon started to catch the attention of economic development professionals.
Fast forward a year, and interest in and discussion of the return to the U.S. of production previously outsourced to China and other Asian markets has surged. No fewer than five sessions at the IEDC 2012 conference in Houston related to manufacturing.
The reshoring wave has meshed with a renewed focus on the overall manufacturing sector, the growth opportunities in high-knowledge, technology-driven manufacturing, the impact on education and skills training, and the demands on logistics and transportation infrastructure.
A range of experts – from the National Association of Manufacturers to academic researchers to government policymakers – are cautiously upbeat on the prospects for U.S. manufacturing, aided in part by forces that are making it more advantageous to bring production back to the United States that had been sourced in China and Asian markets.
Dr. Susan Christopherson, a professor of city and regional planning at Cornell University, noted that out of the 5 million new jobs created in the economic recovery following the recession, 50,000 came from manufacturing.
“When you think about 30 years of jobs flowing to Mexico, Central America and Asia, even the slightest change gets our attention,” Christopherson said at a packed IEDC session on reshoring.
What do economic development professionals need to know about reshoring and overall manufacturing trends:
1. The manufacturing being reshored isn’t the type of lower-skill manufacturing the U.S. lost in the 1980s. It is the higher-end, technology driven manufacturing where labor costs are a smaller part of the overall cost. As China’s labor rates rise and currency fluctuates, the cost advantages are diminishing and are also being squeezed by higher energy and transportation costs.
2. Manufacturing where being close to market is a key consideration will provide major opportunities for regions. Christopherson noted food processing as one such sector. Manufacturers also are being driven by the need for continuous innovation, getting products from research to market faster, so being closer to their R&D can be a major advantage.
3. To speak effectively to manufacturers making a reshoring location decision, regions will need to understand the total cost profile of manufacturing, not just labor costs, but transportation costs, supply chains and the “hidden” costs of offshoring, including quality control and the dislocation of engineering from production. The nonprofit Reshoring Initiative offers free online tools and resources to help calculate those costs and make effective comparisons.
4. Regions will need to assess what their comparative manufacturing advantages are and where they are strong both from a domestic and global standpoint. Christopherson notes that the Northeast has seen a resurgence in manufacturing growth because of the proximity it offers to major markets and the availability of a skilled labor pool.
6. Logistics and supply chain will play an increasingly important role in manufacturing location selection and reshoring decisions and regions will need to fully understand their infrastructure assets and how they could serve the specific needs of a manufacturer. “That is how you attract these companies,” Christopherson says. “Lower their total cost and make it stick.”
Harry Moser, who founded the Reshoring Initiative after a long career running a machine tools company, encourages economic development professionals to be disciples of reshoring and manufacturing.
Moser notes the shortage of skilled workers in manufacturing that will be exacerbated as older workers return. Reshoring will require a recruiting strategy at the high school level to define career opportunities in manufacturing-related skills trades that have waned as manufacturing jobs shrunk. “It needs to be a visible effort so that schools and students making career choices see there is a future in manufacturing,” Moser says.
And economic development professionals should take a lead role in encouraging partnerships between large manufacturers in their region and small and medium-size manufacturing suppliers. Moser notes that reshoring efforts can’t be focused solely on attracting large companies.
“Many (economic development organizations) look at the big elephant, the 1,000 job, governor with the gold shovel project,” Moser said. “You need to encourage your big companies to source locally from your local small companies. While you;re waiting for the elephant, capture the rabbits.”