If you can make it here, why don’t you make it here?
It is a straightforward question which America’s industries are coming face to face with in 2013. There once was a time when a vast majority of manufactures in the U.S. fled the country for the cheaper labor and deals offered by Central America and Asia. The exodus devastated many American towns and cities. Manufacturing hubs like Detroit, Cleveland, and Louisville found themselves stripped of jobs, factories, and pride. Recently the trend of outsourcing has been slowly but surely reversing itself, as seen in this recent article. The factors for this much-needed switch are as varied as the reasons companies left in the first place. They include:
The Natural-Gas Boom and Oil Prices
Oil prices have skyrocketed internationally, while the U.S. has moved closer to a level of energy independence unimaginable a decade ago. This has made shipping costs spike, and has made it easier to open energy-intensive factories in the U.S.
According to J.P Morgan, in 2000 Mexican manufacturing workers cost 3x as much as Chinese. Now the cost is almost equal. While these costs are still much lower than the U.S., you also have to factor in the aforementioned shipping costs, along with intellectual property and regulatory costs. The profits from offshoring shrink as every day passes, as evidenced in this article.
We like to believe that things made in America are in general of better quality. However, what we really mean by quality is that you have access to a pool of workers with better training and educational backgrounds. Additionally, more companies are finding that putting R&D facilities near production speeds up innovation.
While there are even more specific reasons for the increase in reshoring, the bottom line is just that…the bottom-line. In the end, manufacturers had to see that the move back to America was going to be cost and quality effective. In the end reshoring is a matter of national security; in order to regain our place as the economic powerhouse, we must be less reliant on others to make the things we buy everyday.