'What if the age of offshoring has come to an end?' asks Steve Johnson, CEO of Missouri Partnership. 'What if the global market is adjusting so that reshoring (or keeping production in the US to begin with) makes the most financial sense?'
That’s the conclusion companies like Carrier, Ford, Trans-Lux, Sprint, and Farouk Systems have reached after evaluating the total cost of ownership. Big changes have led companies to adjust their approaches to manufacturing.
China’s salaries have increased by about 15%, international shipping costs are through the roof, and intellectual property risks and counterfeit products are at an all-time high. According to MarketWatch, more than half of manufacturing companies that left US soil are facing a situation that makes US manufacturing the cost-competitive solution.
The inevitable change in the US tax code has also played a part in getting companies such as Fitbit on board with reshoring. And some products, such as plastics or large appliances, may even be cheaper to manufacture in the US than overseas.
The US also has a key advantage with the pricing and consistent quality of raw resources in its markets. In some countries, prices and availability of raw materials fluctuate, but both are relatively stable stateside. Additionally, US quality controls are well-regulated, whereas in some overseas markets the quality can be inconsistent and subpar.
Reshoring companies may make their final decisions on the basis of data and cost analyses, but they get positive corporate reputations as part of the deal. Putting a price on community relations is tough, but every manufacturer knows that investing in the local community has serious value for a brand.
Gain a competitive edge without leaving the US
Manufacturers ready to head away from domestic production, or those that have already left to offshore business, might want to reconsider.
- Start with a cost evaluation.
Site selection is, of course, a data-driven decision. Companies engage in an extensive process of analysis, modeling, research, and more to find the right home for their unique business needs, examining factors such as raw materials, utility access, labor quality, and community fit.
Only after the numbers are crunched and the search is narrowed should a site be determined. The days of automatically gravitating to overseas production are over. Today, the numbers seem to indicate that products destined for US consumers should be made in the US
- Look for strong transportation networks.
Access to multiple modes of transport, such as rail transport and interstate highway networks, is a key attribute of companies’ logistics models. Every Class I railroad converges here in Missouri, for example, making us the right fit for manufacturers relying on North American rail access. Companies in need of ocean access will gravitate to coastlines along the national seaboards or to major river ports.
- Go where the action is.
Automotive suppliers are exhibiting a trend of onshoring, with European suppliers locating themselves near US plants producing European-owned brands; Korean and Japanese suppliers are taking a similar approach. Manufacturing suppliers across all industries should take advantage of similar opportunities — joining an existing industry center means that necessary infrastructure and talent supplies are already in place, along with access to major customers.
Businesses with overseas locations are rapidly transitioning production back to the US Facilities are popping up in every region, including Missouri, which recently became the 28th “right to work” state, a key consideration for some overseas companies.
This migration seems poised to lead to a resurgence in American manufacturing prosperity, paving a road to its roots as a center of successful innovation and enterprise.
With more than 30 years of experience leading economic development efforts across Missouri, Steve Johnson, CEO of Missouri Partnership, works with manufacturing companies as they look at US locations for expansion and investment.