Reshoring: Seven Industries to Reach Tipping Point in Five Years

In the next five years, seven major manufacturing industries will reach the tipping point where it becomes more economical for them to shift the production of products consumed in the US to the US from China, according to a report released last week by the Boston Consulting Group.


Those industries account for $200 billion in annual exports from China to the US, two-thirds of China's total annual exports to the US. The report, a follow-up to a BCG study last fall of rising costs in China, predicts that, as a result of reshoring, between 2 million and 3 million jobs will be created over the next decade, between 600,000 and 1 million of them direct manufactuirng jobs. The reshoring will add between $20 billion and $55 billion per year to the US economy, the report projects.


The report also predicts that US exports, particularly to Western Europe, will grow by $65 billion annually in five years, driven by improving productivity in the US as well as the depreciating dollar.


Driving the predicted reshoring, the BCG study states, are rising costs associated with production in China as well as increasing productivity in the US. Labor costs in China, which have been growing, are predicted to rise by 18% per year through 2015. At the same time, manufacturers producing in China face higher transportation costs and higher costs related to the slow rise in value of the Chinese currency.


The seven industries that will reach the reshoring tipping point in five years, according to the study, are:

--Transportation goods ($582 billion consumed in the US, $6 billion imported from China)
--Computers and electronics ($467 billion/$122 billion)
--Fabricated metals ($262 billion/$10 billion)
--Machinery ($251 billion/$16 billion)
--Plastics and rubber ($170 billion/$9 billion)
--Appliances and electrical equipment ($134 billion/$25 billion)
--Furniture ($75 billion/$13 billion)

The report cautions that manufacturers should take a holistic, global, long-term approach when evaluating what products to reshore and what to continue to make in China. Assessments should include worker productivity in different countries, labor as a share of total costs, the relative importance of logistics, and other hidden supply chain costs and risks associated with global production.

But, the report says, the time for that reassessment is now. "The message emerging from this analysis is that companies that have not done so already must start reassessing their global manufacturing footprint," the report says. "Those companies that continue to see China as the default option for manufacturing could find themselves at a competitive disadvantage."

Has your company begun to reassess its global sourcing and production profile, particularly production in China? Have you begun to reshore some production? Do you agree that this is likely to gain momentum over the next few years?

Source: http://www.manufacturing-executive.com/message/3155#3155