The tide has begun to turn on the flow of manufacturing jobs from the
U.S. to China and other low-cost countries, according to a new study
from The Hackett Group, Inc.
Some companies are already reshoring a portion of their manufacturing capacity, and this trend is
expected to reach a crucial tipping point over the next two to three
years, as the total landed cost gap between the two nations continues to
shrink, driven in part by rising wage inflation in China and continued
productivity improvements in the U.S.At the moment, China remains a manufacturing powerhouse, with nearly 75
percent of the companies surveyed having some manufacturing capability
in China for at least three years, either directly or through contract
manufacturers. The Hackett Group estimates that Chinese manufactured
exports to the U.S. currently support between 15 and 20 million jobs in
China.
The Hackett Group’s study offered significant hope for the U.S. jobs
market. The study found that companies are exploring reshoring as an
option for nearly 20 percent of their offshore manufacturing capacity
between 2012 and 2014. This repatriated capacity could roughly offset
the jobs that will otherwise move offshore, indicating that the great
migration of manufacturing offshore over the past several decades is
stabilizing.
Reshoring is expected to become more viable with each passing year, as
the total landed cost gap of manufacturing offshore shrinks. The Hackett
Group’s research found that the cost gap between the U.S. and China has
shrunk by nearly 50 percent over the past eight years, and is expected
to stand at just 16 percent by 2013. This trend is largely driven by
rising labor costs in China, as well as rising fuel prices globally,
which affects shipping costs.
“This is good news for the American worker as growth in the U.S.
manufacturing sector keeps more high-paying jobs at home,” said David P.
Sievers, Principal, Strategy and Operations Leader for The Hackett Group.
The research found that the shrinking total landed cost gap could create
a tipping point resulting in an acceleration of reshoring. “As the total
landed cost gap falls below 15 percent, the economic opportunity will
require more companies to rebalance their supply chains and move
capacity back closer to customers in the U.S.,” continued Mr. Sievers.
According to published reports, many large companies have made public
plans to reshore portions of their manufacturing to the U.S. over the
past two years, including Caterpillar, Nissan, NCR, Yamaha, Ford, and
Electrolux. Earlier this year, both Boeing and GE said they were
committed to moving parts of their offshore manufacturing capabilities
back to the U.S.
Another significant finding from The Hackett Group study is the
increased movement of lower-value manufacturing from China to other
developing economies as companies under margin pressure search for lower
wage rates outside of China. Countries including India, Thailand,
Vietnam, and Brazil continue to successfully grow their share of global
manufacturing as they become more cost effective countries for
manufacturing. “The cost increases in China are impossible for companies
to ignore,” said The Hackett Group Chief Research Officer Michel
Janssen. “As Chinese wage rates rise, companies are looking to maintain
their competitive edge by either bringing that production closer to
developed markets, moving it to lower wage countries, or increasing
productivity in China.”
The research described here is available, with complimentary
registration, at:
http://www.thehackettgroup.com/research/2012/reshoring-global-manufacturing/
About The Hackett Group
The Hackett Group, a global strategic business advisory and operations improvement consulting firm, is a leader in
best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice.
Utilizing best practices and implementation insights from more than
7,500 benchmarking studies, executives use The Hackett Group’s
empirically-based approach to quickly define and implement initiatives
that enable world-class performance. Through its REL group, The Hackett
Group offers working capital solutions focused on delivering significant
cash flow improvements. Through its Archstone Consulting group, The
Hackett Group offers Strategy & Operations consulting services in the
Consumer and Industrial Products, Pharmaceutical, Manufacturing, and
Financial Services industry sectors. Through its Hackett Technology
Solutions group, The Hackett Group offers business application
consulting services that help maximize returns on IT investments. The
Hackett Group has completed benchmark studies with over 2,800 major
corporations and government agencies, including 97% of the Dow Jones
Industrials, 86% of the Fortune 100, 90% of the DAX 30 and 48% of the
FTSE 100.
More information on The Hackett Group is available: by phone at (770)
225-7300; by e-mail at info@thehackettgroup.com.
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SOURCE: The Hackett Group
The Hackett Group Gary Baker, 917-796-2391 Global Communications Director gbaker@thehackettgroup.com
Copyright Business Wire 2012
Source Article from http://www.marketwatch.com/story/research-alert-reshoring-of-some-chinese-manufacturing-jobs-becoming-likely-as-cost-gap-is-expected-to-shrink-to-just-16-percent-next-year-2012-05-24
