There’s been a lot of discussion recently about a resurgence in US manufacturing. Terms like “onshoring” and “insourcing” have been introduced to describe the return of domestic manufacturing from offshore locations like China. Consulting firms like Booz & Co., The Boston Consulting Group and McKinsey & Company’s McKinsey Global Institute have issued papers analyzing the trends and debating the possibility. Publications from Forbes and Harvard Business Review to the Huffington Post have weighed in. And the President featured the idea prominently in this year’s State of the Union address before holding an “Insourcing American Jobs” forum.
What’s our perspective?
We’ve seen a lot of change over the past 40 years.
1972 when we founded Nottingham Spirk was the same year as Nixon’s landmark visit to China, marking the first time a U.S. president had ever visited mainland China and reopening diplomatic relations after decades of Cold War hostility. Most of our early clients’ operations were almost exclusively US based and offshore manufacturing was rare. As government policies in both the U.S. and Asia shifted and communications technologies evolved, low-cost Chinese labor became more accessible and overseas manufacturing became an increasingly attractive alternative.
So we began identifying offshore production resources and helping clients develop production and supply chains as part of our innovation programs. We’re now seeing the same large shifts as everyone else. While they remain much lower than in the U.S., labor costs In China are rising significantly. According to The Boston Consulting Group, average wages in China rose 150% between 1999 and 2006. 1
At the same time, energy and transportation costs have risen dramatically over the last 15 years, further eroding the cost advantage of manufacturing overseas. We’re still developing Asian supply chains for several of our clients’ innovation programs but we have many clients who are choosing to manufacture in the U.S. instead.
The bottom line?
China remains an attractive manufacturing option for many programs, particularly for high-volume consumer products and very labor-intensive goods. For more sophisticated products, including medical devices where quality standards are extremely stringent, the U.S. is often a much better choice. US manufacturing is also preferable in many situations where transportation plays a significant role, such as large ticket items where shipping costs become prohibitive or just in time (JIT) production models where transit times are critical.
Our clients need to be able to make the best choice based on their unique product, market and overall business factors. It’s our job to make sure they have the options and flexibility to make the best choice. We’re constantly exploring and identifying the best manufacturing and supply chain resources – in the U.S., China and around the world. So as conditions change and trends shift, we’ll be prepared to help clients bring new products to market quickly and profitably.