Thursday, June 21, 2012

Reshoring Update

Bloomberg -- "As costs in China rise and owners consider the challenges of using factories 12,000 miles and 12 time zones away, many small U.S. companies have decided manufacturing overseas isn’t worth the trouble. American production is “increasingly competitive,” says Harry Moser, founder of the Reshoring Initiative, a group of companies and trade associations trying to bring factory jobs back to the U.S. “In the last two years there’s been a dramatic increase” in the amount of work returning."

17 Comments:

At 6/21/2012 9:20 PM, Blogger sethstorm said...

If one is to get the water out of the boat, one must stop the leaks. Otherwise it'll still sink.

Stop offshoring from happening in the first place, and things like this can do well. The work not only needs to return but to return from where it was lost and to stay in the US in perpetuity.

No need to involve the useless handwaves of "competitiveness" - save them for sports.

 
At 6/22/2012 6:43 AM, Blogger VangelV said...

...SAYS Harry Moser, founder of the Reshoring Initiative, a group of companies and trade associations trying to bring factory jobs back to the U.S.

It would help to quantify the statements so that we can figure out the scale and the meaning. Just how many jobs have returned. And during that time how many other jobs have gone out? What industries are involved? All this is meaningful but as usual what we get is a lot of narrative but little in the way of facts.

And when wages in other countries rise by so much that their advantage is lost doesn't that mean that the American worker has fallen behind in relative terms?

 
At 6/22/2012 7:09 AM, Blogger joshua said...

Stop offshoring from happening in the first place

There are policies which encourage/discourage this, but it is impossible to ban outright. If it is reliably cheaper for companies to manufacture in a different country, they will find a way.

Besides, unemployment was under 5% as recently as a few years ago, after millions of jobs had been offshored. Many of those jobs were simply replaced as labor was freed to do other things.

 
At 6/22/2012 7:26 AM, Blogger Moe said...

And when wages in other countries rise by so much that their advantage is lost doesn't that mean that the American worker has fallen behind in relative terms?

According to a recent economic policy institute report, between 1979 and 2009, U.S. productivity increased by 80 percent, while the hourly wage of the median worker has only gone up by 10.1 percent.

The total landed cost gap is slowly shrinking as companies take into account the costs of manufacturing along with costs of raw materials and components, transportation and logistics, taxes and duties, and costs of carrying inventories. It's not just a wage-based decision.

 
At 6/22/2012 7:40 AM, Blogger morganovich said...

from what i have seen anecdotally, some of this is also about delivery times.

china's infrastructure is strained in both intermodal and in port loading. i have heard dozens of storied from companies about not being able to get shipments out on time.

in a just in time manufacturing and stocking world, that's a real deal breaker. getting your shipment of components 3-6 weeks late can shut down a whole business.

 
At 6/22/2012 7:59 AM, Blogger Matticus Rex said...

To add to what Moe said, I would also say that "global wages" is not a zero-sum game... just because some of the 3rd/2nd world countries are seeing a rise in wages doesn't mean someone else has to lose out.

I think it's the JIT philosophy that is giving US manufacturing some of this boost, although I don't have data offhand to back that up... but I know some finance guys at T1/T2 auto suppliers who say that the margins have only gotten smaller, and even short disruptions can (and have) wiped out the "savings" from offshoring.

 
At 6/22/2012 8:22 AM, Blogger VangelV said...

According to a recent economic policy institute report, between 1979 and 2009, U.S. productivity increased by 80 percent, while the hourly wage of the median worker has only gone up by 10.1 percent.

Without actual and comprehensive data this is a meaningful statement. If low value added work is moved off shore while there is investment in capital you would expect a sharp increase in pay for a few jobs while there is little change at the lower end. The higher productivity comes from the capital investment and the loss of low productivity jobs, not from paying less than market wages.

The total landed cost gap is slowly shrinking as companies take into account the costs of manufacturing along with costs of raw materials and components, transportation and logistics, taxes and duties, and costs of carrying inventories. It's not just a wage-based decision.

That is true. But most materials are trading in a global market and price differentials do not last that long. And for some items the costs of transport are low enough that they are not material. It is the very bulky items in which material is the biggest cost where transport costs are having a big effect. Bringing such work back makes sense but has little impact on the general labour market.

 
At 6/22/2012 8:52 AM, Blogger VangelV said...

Sorry. That should have been, "Without actual and comprehensive data this is NOT a meaningful statement."

 
At 6/22/2012 9:04 AM, Blogger Bruce Hall said...

One of my sons is involved in a startup proposition that requires low cost forming of recycled, biodegradable materials. An investor had contacts in China that could do the work at a reasonable cost, but the order quantity was large and the order fulfillment time was long.

After searching within the U.S., they found a large corporation that could do the same work for less and supply time was less than a week from within the same state... with smaller minimum orders.

Wages may be a factor, but sometimes due diligence is necessary to make a good decision.

 
At 6/22/2012 9:54 AM, Blogger 434AT3M3 said...

This comment has been removed by the author.

 
At 6/22/2012 10:12 AM, Blogger StVIS said...

Although China is making remarkable progress and is the future, from cultural standpoint, she still has some catching up to do. Aside from rising labor costs, some US companies are tiring of the cat-and-mouse games surrounding quality control and costs, and are tempted to test fate in the US.

Some of the expats I talk to are growing leery of the games, too: shipping orders several days ahead of inspections, incremental (and initially miniscule) degradation of quality, collusion between manufacturers and 3rd party "inspectors" and suppliers, non-stop haggling over defects ("It's not broken if it still makes a noise, right?"), surprise jack-up of costs the week orders ship... and so on.

Mind you, I'm not knocking China (although intellectual property theft is a different matter). It remains in many ways a developing country, and cultural changes occur more slowly than technological changes. Its complex culture doesn't always make its companies the easiest to deal business with (Paul Midler covers this well in his book).

That said, you can expect continual price increases as Chinese manufactures are beginning to tell even Walmart to "Piss off".

 
At 6/22/2012 10:34 AM, Blogger Jon Murphy said...

Much of what is coming back are heavy items, like auto parts, large appliances, etc. the small, easy to transport stuff is staying in China

 
At 6/22/2012 10:53 AM, Blogger VangelV said...

Not everyone can be part of the middle class. It is not a sustainable model. Working poor

You might want to rethink this from the perspective of the standard of living. In the US the 'working poor' are still capable of living extremely well. They have TVs, cheap food and energy, air conditioners, cell phones, etc., items that the middle classes in many places do not have access to. People get so hung up in the relative that they miss what is important.

 
At 6/22/2012 12:15 PM, Blogger juandos said...

"Stop offshoring from happening in the first place..."...

Still pissing into the wind, eh sethstorm?

 
At 6/22/2012 5:38 PM, Blogger Andrew_M_Garland said...

I have a plan which will benefit all of the workers in the US.

For each product produced in the US, find the two states which are the most efficient, volume producers, and ban that product from being produced in those two states. If a ban is too sudden, then first impose increasing duties on the production in only those two states.

This will unleash a wave of productive demand for each product in all of the other states. Local production will no longer be savagely depressed by the competition of the (former) top two states. Many jobs will be created in all of the other states, albeit at slightly less efficiency. But, what is more important: cold efficiency or warm, local jobs?

Yes, there will be some gnashing of teeth from the former cold hearted, most efficient producers. And, there will be some realignment of resources and prices. Some former top dogs will need to be dissuaded from continuing to manufacture into a black market. They can be severely punished for the crime of attempting to retain jobs for themselves at the expense of everyone else.

We can no longer allow efficiency to sap the strength and eliminate the jobs of this great nation. (sarc)

EasyOpinions.blogspot.com

 
At 6/23/2012 3:05 AM, Blogger sethstorm said...


There are policies which encourage/discourage this, but it is impossible to ban outright. If it is reliably cheaper for companies to manufacture in a different country, they will find a way.

Then the US government can always find a way around that and block the next step. The first step however, will be to close the exits on offshoring. The next step would be to eradicate the fraud used by business to perpetuate offshoring. The third would be to maintain compliance.

Offshore oil rigs, not jobs.


Besides, unemployment was under 5% as recently as a few years ago, after millions of jobs had been offshored. Many of those jobs were simply replaced as labor was freed to do other things.

That is a lie. They were not freed to do anything other than be unemployed. Any alleged replacements were of lesser quality versus non-offshored work.

That, and the statistics behind your figure are jujst as bad then as they are today. Without the offshoring, you would have even better unemployment levels(such as 2-3%).



You might want to rethink this from the perspective of the standard of living. In the US the 'working poor' are still capable of living extremely well.

You're arguing for things to be worse. You ignore the quality.

You want to incorrectly suggest that the middle class should not exist, and that it is fine for certain underclasses to exist such as the working poor.

 
At 6/26/2012 2:30 PM, Blogger juandos said...

O IS FOR OUTSOURCING

OBAMA CAMPAIGN BASHES ROMNEY FOR BAIN OFFSHORING, EMPLOYS CALL CENTER IN CANADA

 

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