Will U.S. Return To Manufacturing?

By SiliconIndia   |   Tuesday, 30 August 2011, 12:10 Hrs
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Bangalore: The latest report by the Boston Consulting Group (BCG) envisioned restoration of manufacturing to the U.S. will stimulate, as companies will incur the full costs of outsourcing to China and calculated advantages of arranging products closer to customers in North America.

The report, entitled "Made in America: Why Manufacturing Will Return to the U.S." was released today.

An earlier report by BCG, "Made in America, Again" had amplified into the structural cost shifts that are in favour of edging to what the firm has declared as 'manufacturing renaissance' in the U.S. The scrutiny released in May predicted an increment of 15 to 20 percent in Chinese wages, fortifying Yuan. Various factors could virtually wipe out China's manufacturing cost advantages against low cost U.S. states for goods imported into North America, while higher U.S. labor productivity is allocated.

The new report examines the cost shifts in specific aspects and deciphers why U.S. will boost manufacturing even if Chinese productivity precipitates. Though the Chinese productivity is expected to grow at an influential rate of 8.5 percent annually over the next five years, the factory wages will improve twice as fast. The Chinese factories will not be able to conserve its fast eroding manufacturing cost advantage for many products, even if these factories establish identical automated assembly lines used in U.S. factories.

A BCG senior partner and a leading author of the study said, "Greater automation would undercut the primary advantage of outsourcing to China, which is access to cheap labor."

"Once companies carefully look at all the costs, many will find they will be better off making their products closer to customers in the U.S.," he added.

More attention is being bestowed to strategic advantages of locating production of many goods closer to U.S. customers and disadvantages of operating extended global supply chains.

Michael Zinser, a BCG partner who leads the firm's manufacturing work in America explained, "When you include things like transportation, duties, and currency appreciation, any gains from sourcing in China may not be worth the many risks and headaches associated with operating supply chains extending halfway around the world."

The report cites many instances of U.S. companies that have reached the same conclusion. For example, Peerless Industries is amalgamating all audio-visual mounting systems manufacturing in Illinois. In order to acquire cost efficiencies, short lead times and greater control over manufacturing process, the company is shifting work from China.

Outdoor Greatroom Company shifted its fire pits and some outdoor shelters production from China to the U.S. enumerating the inconvenience of booking orders from Chinese contractors nine months in advance.
Coleman Company made a decision to shift the production of its 16-quart wheeled plastic coolers from China to Wichita, Kansas, due to massive shipping expenses and manufacturing costs.

Vietnam, Indonesia and Mexico are the preferred choices for some manufactures to relocate their work to China. These countries cannot absorb all high-end manufacturing, as they fall short of decent infrastructure, domestic power supply and skilled workers.

Sirkin, the author of "Globality: Competing with Everyone from Everywhere for Everything" said, "For the past few decades, China has been the opposite of a perfect storm for the manufacturing world. It offered a total package that is unlikely to be matched by any other low-cost nation," The book deals with emerging markets and globalization.

However, this should not be seen as China's decline as a major manufacturing power, because it will always be the world's fastest-growing consumer market. Another BCG partner, Douglas Hohner, focused on manufacturing said, "Foreign companies will want to maintain their Chinese manufacturing operations to serve the Chinese market and the rest of Asia. But in terms of supplying North America, China will no longer be the default option."

Global Advantage and Operations are undertaking a study on future of global manufacturing and "Made in America, Again" is a part of that study. The study scrutinizes on how shifting production costs in China and at other places will influence distinguished industries.

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