Finally, some good news. Amidst the standard fare of predictions of the inevitable decline and fall of US manufacturing, an interesting and encouraging 2011 report has been authored by the Boston Consulting Group (BCG) called “Made in America, Again.”
According to the report, “Manufacturing is expected to return to America as China’s rising labor costs erase most savings from offshoring.” As US states become cheaper locations to manufacture goods compared to other developed countries, the report suggests that by 2015 manufacturing in some parts of the US will be just as economical as manufacturing in China.
The key reasons listed are:
— Wage and benefit increases of 15-20% per year at the average Chinese factory will slash China’s labor-cost advantage, reducing the savings gained from outsourcing will drop to single digits for many products.
— Transportation, duties, supply chain risks, industrial real estate and other expenses will minimize cost savings of manufacturing in China compared to the US.
— Automation and other productivity improvements in China will further undercut the primary attraction of outsourcing to China: access to low-cost labor.
— Rising income levels in China will create greater demand for goods in the domestic Chinese market, driving production work for the North American market back to the US.
— Because of rising Chinese labor costs, manufacturing of some goods will shift to other low-labor cost countries. However, compared to the US, those countries do not have the infrastructure, IP protection or political stability that is necessary to mitigate risk, which will encourage manufacturers to return to the US.
BCG states that “reinvestment during the next five years could usher in a ‘Manufacturing Renaissance’ as the U.S. becomes a low-cost country among developed nations.”
If the report is correct, then the next question becomes “what does ‘reinvestment’ entail, and do we have the will to do it?”
What do you think of the report? Do you agree or disagree?
Read the full pdf here.