In a recent announcement released by Boston Consulting Group (BCG), more than half of the 200 U.S. companies with sales greater than $1 billion are moving contract manufacturing services back to the United States instead of offshoring to countries like China.
As stated by Harold Sirkin, senior partner at BCG:
Over the past couple of years, we’ve projected an improvement in U.S. manufacturing competitiveness by 2015 that would help drive an American manufacturing revival. The results of our latest survey make clear that a profound shift in attitude is beginning.
What is causing this significant shift in reshoring contract manufacturer jobs back to the U.S.?
The total cost of manufacturing in China today has increased beyond what it would now cost to manufacture right here in the U.S. In fact, by 2015, manufacturing costs incurred from exporting to other countries are projected to be eight to 18% higher than in the U.S.
There are five signs that show this paradigm shift carries with it meaningful impact for the U.S. manufacturing industry and the economy at large.
Sign #1: Asian Wages Have Recently Surged
For decades, American companies have been sending their contract manufacturing services overseas. The low wages and reduced costs in countries like China also translated to cheaper price points for consumers of these products.
However, the wage gap between the U.S. and China has narrowed. Pay in China has risen at least 15% annually for the past few years. Wages are still comparatively low in China, but there are other signs of this manufacturing shift.
Sign #2: The Dollar Has Dropped Over The Past Decade
The dollar continues to decline against the yuan, which has effectively increased the cost of doing business in China by 23% over the past five years. This fact has made U.S.-produced goods more competitive.
The weaker dollar also makes American exports appear cheaper to foreign consumers, which has contributed significantly to the reshoring of manufacturing jobs back to the U.S.
Sign #3: High Oil Prices Make Shipping Across Oceans Expensive
The cost of oil keeps rising, meaning that the costs are increasing to ship long distance via ocean freight. The increased costs for shipping are essentially eating away at the benefits of manufacturing in China, making domestic manufacturing services much more appealing.
Global companies are still expanding production capacity in Asia to serve those fast-growing markets. But more are questioning the logic of trying to meet North American demand from manufacturing in China.
Companies across the world are moving toward a regional-manufacturing model, where Asian plants serve Asian customers and North American ones serve American.
Sign #5: Lower Energy Costs Thanks To Fracking
The process of fracking has been very successful in unlocking oil and gas reserves heretofore unavailable, and is an increasingly important part of the equation concerning reshoring contract manufacturing services. In less than two years, the price for natural gas is projected to be between 60 and 70% lower here than in Europe and Japan. Also, the cost of electricity will be 40 to 70% lower here than in Asia. Those are advantages the U.S. may enjoy for years if not decades to come.
China has enormous untapped oil shale reserves, perhaps even larger than those in the U.S., but so far their efforts to extract significant quantities of oil to quench their own internal thirst for energy have faltered.
The U.S. advantage of contract manufacturing services is impressive, and it seems as though there isn’t much that’s going to stand in America’s way of experiencing a manufacturing boom.
Ready to learn more about finding the right regional contract manufacturer for your company? Call me, Craig Zoberis, at 866.952.9020 or click on the button below to speak with a contract manufacturing expert at Fusion OEM.