OM in the News: Offshoring Still Outpaces ‘Reshoring’
The U.S. has continued to grow more reliant on imports from China and other Asian countries despite a much-discussed trend toward “reshoring” of manufacturing, reports The Wall Street Journal (Dec.15, 2014). Consultants in recent years have heralded the potential for the U.S. to regain many of the manufacturing operations sent overseas in the past 2 decades in search of lower costs. A variety of companies, including Whirlpool and G.E., have moved production of some items back to the U.S. But there is still a gap between hopes raised by these scattered developments and the reality of a deteriorating U.S. trade performance.
Reshoring “is not what it’s cracked up to be,” says consulting firm A.T. Kearney. “There’s basically still more stuff being pushed out of the U.S. to lower-cost countries than is brought back.”
The U.S. is gradually becoming more competitive in manufacturing, partly because energy costs are lower than in most other countries and the gap between U.S. and Asian wages is narrowing. Companies also can reduce shipping costs and respond faster to shifts in demand if they produce closer to their customers. That trend doesn’t yet show up in the data, however. In 2009 through 2013, U.S. manufacturing output grew by an average rate of nearly 6% a year. But U.S. imports of manufactured goods from China and other low-cost Asian countries grew even faster, at an average rate of 8%.
One big hurdle for efforts to move production from Asia to the U.S. is that American manufacturing expertise and supplier networks have withered. Companies considering moving production to the U.S. often worry about finding enough suppliers and skilled workers. “They’re looking for an ecosystem to plug into,” says A.T. Kearney.
Classroom discussion questions:
1. Why are more companies reshoring?
2. Why don’t more companies reshore?