Welcome Back, Manufacturers!
A recent analysis by the
Boston Consulting Group (BCG) suggests that the U.S. will enjoy a manufacturing
renaissance within the next five years as the wage gap closes between the U.S.
and China. Wages in China are rising between 15-20% a year, and coupled with
stagnant U.S. wages, BCG expects net labor costs for manufacturing to converge
around 2015.
This would accelerate a trend already underway as more and more manufacturers come to realize that the economics of offshoring depend on a lot of other factors besides wage rates, including shipping costs, quality issues and lead times. Skyrocketing gas prices in particular are driving up transportation costs.
Despite the outsourcing craze of recent times, the U.S. still manufactures more goods than any other nation on earth, and by a wide margin. A United Nations’ report put America’s manufacturing output at $2.15 trillion in 2009, far surpassing second-place China’s $1.48 trillion. China’s output has been rising at a far faster pace than ours and this has led conventional wisdom to assume that it would overtake the U.S. in manufacturing output before the present decade is over. Now it looks as much in question as Tiger Woods’ pursuit of Jack Nicklaus’ tournament win records.
Of course, other nations with cheaper labor rates than China will no doubt become more attractive to outsourcing manufacturers. But many of those countries lack the labor skills and infrastructure to fully pick up the slack. Plus, how long will it be before those Third World workers start demanding higher wages and a better life?
Another factor likely to benefit U.S. manufacturers, at least in the short term, is Japan’s supply chain disruptions due to its massive earthquake and nuclear power plant woes. Brush off those “Made in the U.S.A.” signs.
This would accelerate a trend already underway as more and more manufacturers come to realize that the economics of offshoring depend on a lot of other factors besides wage rates, including shipping costs, quality issues and lead times. Skyrocketing gas prices in particular are driving up transportation costs.
Despite the outsourcing craze of recent times, the U.S. still manufactures more goods than any other nation on earth, and by a wide margin. A United Nations’ report put America’s manufacturing output at $2.15 trillion in 2009, far surpassing second-place China’s $1.48 trillion. China’s output has been rising at a far faster pace than ours and this has led conventional wisdom to assume that it would overtake the U.S. in manufacturing output before the present decade is over. Now it looks as much in question as Tiger Woods’ pursuit of Jack Nicklaus’ tournament win records.
Of course, other nations with cheaper labor rates than China will no doubt become more attractive to outsourcing manufacturers. But many of those countries lack the labor skills and infrastructure to fully pick up the slack. Plus, how long will it be before those Third World workers start demanding higher wages and a better life?
Another factor likely to benefit U.S. manufacturers, at least in the short term, is Japan’s supply chain disruptions due to its massive earthquake and nuclear power plant woes. Brush off those “Made in the U.S.A.” signs.
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