Over the past decade or so, countless US and European companies have either outsourced or moved all or part of their manufacturing facilities to places such as China, the Far East, Central and South America and Eastern Europe. There were sound economic reasons for going overseas: wages were low in comparison to the US; there was a huge pool of skilled labor and exceptionally high rates of unemployment; shipping costs were relatively cheap; and governments offered incentives including tax breaks and heavily subsidized purpose-built factories.
Given the competitive nature of world trade in the early years of the century, it is not surprising that so many businesses took advantage of the opportunity to reduce costs, circumvent ever more restrictive employment laws and cut their tax bills. However, since 2010 business owners are starting to see the benefits of bringing manufacturing home.
Though there were major concerns that the country’s manufacturing base was in danger of collapsing completely, you have to remember that even in the dark days of the recession the US remained the world’s largest manufacturing country, producing 18.2% of global goods; China came second with 17.6%. By October 2012, statistics showed that over the previous 18 months half a million new manufacturing jobs had been created in the US, the biggest increase since the 1990s and a sure sign that dramatic changes were underway.
What is behind this change in corporate thinking? The answer is that a number of disparate developments have taken place over the past five years that have changed the global economic landscape. The economies of many developing countries have grown dramatically in this period, leading to populations that are enjoying a higher standard of living, which in turn has led to a hike in the salaries paid. In a single stroke, one of the biggest benefits of moving manufacturing overseas has been significantly eroded.
Manufacturing costs in China are still some 7% below those in the US, but the cost of shipping finished goods has to be taken into account. The cost of diesel fuel, which powers the vast majority of shipping fleets, has risen, and in an ever more unstable world extended supply chains are a constant source of concern.
Also, US-based companies are beginning to recognize the advantages of locating their manufacturing plants close to their design studios and corporate headquarters. Having the ability to respond quickly to a rapidly changing market and increasingly demanding customers is becoming ever more important.
For many decades North America and Europe have led the world in terms of technological developments and innovation. The US is home to the world’s leading centers of learning and produces thousands of graduates every year, many of whom go on to work in aerospace and automotive engineering, where niche companies such as Transducer Techniques are thriving.
By installing advanced software systems and machinery, manufacturing processes have been automated to the point where only a small number of highly skilled operators are required. This has resulted in US manufacturing costs being forecast to fall to one of the lowest in the world over the next year or so.
As the world finally shows signs of economic recovery, the outlook for manufacturing in the US looks brighter than it has for many years.