Latest Import from China: Jobs

According to a survey by The Boston Consulting Group (BCG), more than a third of U.S.-based manufacturing executives at companies with sales greater than $1-billion are planning to bring production back to the USA from China, or are at least considering it.

Further, 37% of the 106 respondents from a broad range of industries said that they plan to “re-shore” manufacturing operations, or are “actively considering” it. That response rose to 48% among executives at companies with $10-billion or more in revenues, a third of the sample.

After six million manufacturing jobs disappeared between 1997 and 2010, the re-shoring of jobs is truly exciting.

But why are companies doing it? A combination of factors: sharply rising relative manufacturing costs in China, accentuated by stagnant U.S. wages, plus productivity gains by US workers, along with steeper transportation costs as oil prices rise and costlier maintenance of longer supply chains.

Interesting that some Asian nations, Vietnam and Indonesia, will draw manufacturers seeking low-cost labor, notably lower than China. In fact, some Chinese companies are already outsourcing manufacturing jobs to Vietnam and Indonesia, among other countries.

Another reason for the exodus is that leading designs exported out of the USA for manufacturing and development in China, and elsewhere in Asia, are often copied and distributed to state-run organizations. In fact, Google and Microsoft have both threatened to leave China for reasons such as this.

Further, the renmibi, the official currency of China, is rising at about 4% per year.

Products more likely to be “re-shored” would include heavy or bulky items, for which shipping costs are high in relation to price. Heavy machinery for example. Also expensive items subject to frequent changes in consumer demand such as changes in color or style, high-end clothing, home furnishings, and even appliances. Also, products where safety concerns are vital, like baby food, might choose to stay in the USA for manufacturing.

According to the Boston survey, China still has a much lower wage than the United States - $3.40 per hour to $3.50 per hour common in eastern China’s big manufacturing hubs compared with U.S. wages of $12.40 to $16.50 per hour. However, it is estimated that US manufacturing workers produce about three times as much per hour as the Chinese manufacturing worker. This is due to greater use of automation and more efficient manufacturing processes in the USA. There certainly are exceptions, however.

So, who are some of these re-shorting manufacturers? Whirlpool’s KitchenAid hand mixers for one. GE Appliance is re-shoring a water heater plant to Kentucky. NCR, which was manufacturing their ATMs in China for the U.S., is now manufacturing them in Columbus, GA. Farouk Systems, which makes hair dryers, has moved 1,500 jobs back from China to the US, as well as Coleman, the manufacturing of water coolers. Master Lock in Milwaukee, Otis Elevator moved production from Mexico to South Carolina.

The BCG survey found that 67% of respondents in rubber and plastics industries, 42% in machinery, 41% in electronics, 40% in computers, and 35% in fabricated metal products indicated that they expect to re-shore production from China to the USA.

Before the end of this decade, the BCG survey predicts that production of 10% to 30% of these industries could shift back to the USA. Major factors cited for driving these decisions include labor costs 57%, product quality 41%, ease of doing business 29%, proximity to customers 28%. In addition 92% said that they believe that labor costs in China will continue to rise, and 70% agreed that “sourcing in China is more costly that it looks on paper.”

With cost, capital and the job market as prime considerations, particularly in the past couple of years, companies are finally considering re-shoring these valuable manufacturing jobs back to American soil, where the “Made in the USA” label could once again appear.

But does this mean that China will slip into a recession and directly affect the world economy? Probably not. As the Chinese wage has risen, the buying power of Chinese workers has expanded, which has allowed them to purchase goods locally. This provides a huge market for manufacturers in China to sell to the Chinese populace. Economically this could provide an additional impetus to the global economy, not a drag on the world economy. So everybody wins.