In our previous blog, we noted the return of some manufacturing fromChinato theUS. This practice has been coined “reshoring”. We are not sure if this trend is a long term trend or even how theUScan take advantage of this window of opportunity. The return of manufacturing back to theUSis an encouraging trend, but there are a number of obstacles that could cause the trend to reverse.
- The wage gap has narrowed, but is that a long term trend? With unemployment over 8% in some areas, it is relatively easy for manufacturers to find workers to fill lower paying jobs. But how long will this trend last, a resurgingUSeconomy as well as stronger union laws could quickly widen the gap and change the cost equation.
- China’s Reaction: Unlike the US which is a free market, the Chinese government can and does play a large part in its economic direction. We are sure thatChinawill consider policy changes to try to reverse reshoring if the trend continues. Chinahas shown to be more willing than theUSto sacrifice environmental and safety to achieve greater growth.
- USLabor Availability: This may seem hard to believe with the 8% unemployment rate and the 20% underemployment rate, but in many parts of the country manufacturers are having difficulty finding skilled labor needed to run its processes. TheUSneeds to address this “skill gap” if it wants its manufacturing base to expand.
- South Asia: Labor is considerably cheaper in Vietnam than China; some of China’s cost issues will result in expansion in South East Asia rather than the US. A CEO of a major company once said: Any business that is competing based on low labor cost can expect to move it facilities every 5 years”
It is interesting to note thatUSmanufacturing took a major hit back in the 1980’s asJapanstarted providing lower cost products at higher quality. TheUSresponded by launching its own quality and lean manufacturing revolution that allowed them to regain the lost market share. The Chinese andAsiaprovide a different kind of challenge, it remains to be seen if we can effectively use our creativity, work ethic and resources to respond to this challenge.