Op-Ed: Born In the USA

In Born in the USA, Bruce Springsteen wrote that he was "Born down in a dead man town." Well, those towns may be coming to life again, as companies begin to consider reducing the manufacture of products offshore and begin to move to "insourcing," "onshoring" or "reshoring." While off in the distance, America's next big import from China may be jobs. As the cost of doing business rises in traditionally low-cost countries like China, companies are rethinking their offshoring plans. Other countries may currently offer rapidly developing domestic markets, artificially low currencies and significant government incentives to attract foreign investment; the U.S. is still the number one place to make sophisticated, high-cost goods.

A combination of economic forces is eroding China's cost advantage as an export platform for the North American market. With unemployment still at record levels for the foreseeable future, the U.S. offers a flexible workforce and a growing corporate sector. The USA is becoming more attractive as a place to manufacture many goods consumed on this continent.

Mike O'Shaughnessy, founder of Elements Electronics, has opened the first assembly line for the domestic manufacture of TVs that this country has seen in decades. He indicated that Detroit had advantages that were too good to pass up. While he considered Asia, he found that Detroit was best location for their new plant after taking into consideration labor, tariff and transportation costs, coming to the conclusion that making TVs in American made sense. He hopes to attract component manufactures to the area so parts won't have to be imported. He added that their production line is sold out for the rest of the year.

He is not alone in his thinking. Master Lock Company, the world's largest manufacturer of padlocks and related security products, is bringing jobs back to the United States that had previously been off-shored. Caterpillar has decided to bring back a manufacturing operation from Asia that will add 1400 jobs and support another 2800. Caterpillar plans to build a $200 million plant in Athens, Georgia. Why is CAT so bullish on the U.S. manufacturing market? CEO Doug Oberhelman explains that the logistics and friendly business environment in the state were strong considerations.

An analysis by The Boston Consulting Group concludes that by 2015, many goods destined for North American consumers, manufactured in selected regions of the U.S., will be just as economical as if manufactured in China. The key reasons for this shift include:

• Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China's labor-cost advantage over low-cost states in the U.S., from 55 percent today to 39 percent in 2015. Because labor accounts for a small portion of a product's manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products.

• When transportation, duties, industrial real estate, and other costs are fully accounted for, the cost savings of manufacturing in China rather than in the U.S. will become minimal within the next five years. There are also significant supply chain risks that have to be taken into consideration.

• U.S. manufacturers may want to continue to chase lower labor costs around the world to countries like Vietnam and Indonesia, but they find these countries lack infrastructure, skilled workers, and scale.

From a supply chain perspective, clients need to take a second look at the geographical opportunities before they rush to move a process offshore. This includes the cost of transportation, effects of transit time on inventory carrying costs and the risk of supply chain disruptions. You also have to consider the future impact that you may be faced with as manufacturing returns to America. That includes the rising transportation costs in the U.S.

There are many of you out there that may think this will never happen. But consider the condition that the country's labor market is in today. There will be a need to stimulate additional job growth. Regardless of the simulative action taken, this country must and will be rebuilt, and that dead man town will rise again with products that say 'Born in the USA.'

Article Source: Tim Nissen