Is manufacturing leaving china and coming back to the US
on November 8, 2012
Recently we at Packnet have seen a steady increase in customers seeking US manufacturing and Packnet to quote projects that are currently being produced inChina. Primarily custom shipping cases, foam and CNC routering of parts are the main focus. From our perspective this trend has been evident since the beginning of summer. So for this blog post we did a little research.
In turns out that there is indeed a trend and it actually started about 5 years ago. In factChina’s manufacturing has declined for 7 consecutive months while manufacturing in theUShas been rebounding despite this poor economy. Apparently the trend of product coming back is real, so why is the trend going the other way? It seemed that 10 years ago, if a product had any kind of volume, it was a no-brainer to send it to china for manufacturing. There are several factors that are contributing to this trend.
- Chinese inflation: 10 years ago Chinese labor was about 80% cheaper thanUSlabor, but today that gap is narrowing and in some cases the wage gap is less than 30%. US wages have been steady or even declining since the big recession; last yearChina’s average labor rate increased by over 19%, which is on par with the previous 3 years. When shipping and logistic costs toChinaare considered, the overall cost model changes significantly.
- Quality: Many manufacturers inChinastill have good quality, but the Chinese worker has been moving around finding better opportunities for higher wages. The result has been higher turnover which has caused learning curve problems. Additionally, it was very common to have a much larger number of Chinese workers doing quality inspection than the correspondingUSplant. However the higher cost of Chinese labor makes this practice of “inspecting” quality into the product cost prohibitive. Differences in US andChinaregulation can also contribute to a perceived quality gap between US and Chinese products.
- Logistics: Higher oil prices have increased shipping costs. When one considers the smaller wage difference, these costs can make outsourcing prohibitive for heavier or larger products.
- Political: There appears to be growing unrest inChinaas the population grows in mobility and education, the authoritarian ways are being challenged. China’s economy seems unstable right now and no one is sure about its direction. Many businesses are viewingChinaas a much riskier option as they consider supply chain strategies.
- Made in USA Sentiment: There is a broad sentiment for buying moreUSAbuilt products, both presidential campaigns are touting the bring jobs back theme. In this current economic environment, many CEOs have to consider the public relations ramifications of sending jobs overseas.
While this trend is encouraging, it needs to be pointed out that the flow of jobs coming back to theUSis still modest. Less than 2% of the jobs lost in 2008 and 2009 have returned. One also may be pessimistic that this is a long term trend. Part of the shrinking wage gap is due to theUSworker accepting lower wages during high unemployment. It is very possible that when our economy starts growing again, the wage advantage forChinacould increase significantly.