The New Reallocation of Global Manufacturing and The Renaissance of American Manufacturing
In the Knowledge@Wharton video above, Hal Sirkin of the Boston Consulting Group discusses the rebirth of manufacturing that is underway in the U.S., partly because of the erosion of China’s manufacturing cost advantages, especially for wages, which has started bringing manufacturing production and jobs back to the U.S., reversing a decade-long trend of outsourcing production overseas. Ten years ago when China entered the WTO and wages there were $0.58 per hour (vs. $15 in the U.S.), it made economic sense for American manufacturers to outsource production to China. But now with ongoing double-digit wage increases in China, high oil costs, long delivery times, and quality and intellectual property issues, American manufacturing can now increasingly compete on cost, productivity, quality and delivery. Manufacturing in the U.S. makes more sense today than in a generation, especially for those products that are destined for the U.S. market.
The Boston Consulting Group predicts that within a few years, China's manufacturing cost advantage will disappear for 70% of the products currently produced there for the U.S. market, and increasing amounts of production will be "reshored" or "insourced" to the U.S., with the potential to create 2-3 million new factory jobs in America. Dozens of U.S. companies have already brought manufacturing production and jobs home, and that contributed to the manufacturing sector's strong economic performance in the last two years, with all-time record profits in 2011, almost 400,000 new jobs since the beginning of 2010, and output growth last year more than twice the rate of the overall economy.
Welcome to America's manufacturing renaissance, and it's just getting started.
HT: Dan Greller