Study gives reshoring a mixed message.
By The American Bazaar Staff
WASHINGTON, DC: Imported goods from lost-cost Asian countries is growing at a faster clip than goods manufactured in the US, giving a mixed message to the idea of reshoring, says a new study by management consultants A.T. Kearney.
The study, unveiled in A.T. Kearney’s “Reshoring Index,” is the first in a series of studies trying to look more objectively at the return of manufacturing to the U.S. since the last recession.
The study noted that U.S. manufacturing production grew 6 percent a year from 2009 to 2013. But it also said that imported manufactured goods from Asia grew even faster, at 8 percent a year, during the same time frame, according to Plastics News.
“While the so-called reshoring trend has helped improve the mood of U.S. manufacturing since the Recession, the reality is that the import value of manufactured goods into the U.S. from 14 low-cost Asian countries has grown at an average of 8 percent per year in the last five years,” said study co-author and A.T. Kearney principal Pramod Gupta.
The study acknowledged limits in hard data on the topic, and did not look at Mexico as a reshoring destination, but it said that “the impact of reshoring on this turnaround [in U.S. manufacturing] is much less than the hype would indicate… Thus far the evidence has been largely anecdotal.”
The December 15 study said reshoring is clearly happening, as manufacturers seek to mitigate rising costs in China, or they want more nimble responses from their supply chains, or they want to take advantage of more consumer interest in a “Made in the USA” label.
The A.T. Kearney analysts pointed to some industries, like apparel, where they admitted they were somewhat surprised that work was returning to the United States.
But in general, the study said it found little evidence to support the idea of large-scale reshoring — it said that in nine of the last 10 years, imports of manufactured goods grew faster than domestic manufacturing production, noted Plastics News.
It said that in the three years from 2011 to 2013, there was some evidence that U.S. manufacturing output was beginning to grow faster than imports. But it said early evidence in its index for 2014 show imports gaining ground again.
“This could be an indication that the impact of the reshoring wave is waning,” it said.
The study indicated electronics sector may see more reshoring — it said that import growth of electronics components from Asia slowed markedly in 2013, after strong growth from 2009 to 2012.
“With year-over-year offshore import value growth slowing for electronics to a relatively modest 1.9 percent in 2013, are we now at a tipping point?” it asked. “We will leave that for the time being to the prognosticators.”
The Blade reported that a number of large companies have made high-profile decisions recently to bring production back to the United States. Perhaps the biggest commitment was that of Walmart, which said it would increase spending with domestic suppliers by tens of billions of dollars over the next five years.
In Ohio, Whirlpool Corp. decided last year to move production of some washing machines from Mexico to Clyde. Ford Motor Co. made a similar move this year, committing to bring production of some heavy-duty trucks from Mexico to Avon Lake, Ohio.
“I wouldn’t say companies aren’t thinking about reshoring,” Gupta said. “That’s very much part of the equation as companies start thinking about expanding production in the U.S. or expanding their operations.”
Paul Zito, vice president of international development at the Regional Growth Partnership, was quoted by the Blade as saying: “A lot of people who badmouth U.S. companies that are expanding overseas, they don’t realize the U.S. companies that are making the investment in China, in Mexico, in India, are making those investments to supply those markets, not shipping back to the U.S
Zito points out it works both ways. A recent Japanese trade organization report found 66 percent of Japanese companies doing business internationally plan to either increase or make new investments in the United States in the next several years.
1 Comment
It is unfortunate that some of the conclusions drawn by the A.T. Kearney study are incorrect.
For example, if all of the data is considered correctly, the Index would show the last 3 years positive.
Also, A.T. Kearny data shows the number of annual cases of reshoring is up 18 times or 1,775% in 4 years which is an average growth rate of over 100%/year. Their data also shows the annual losses to offshoring shrank 60%-70%.
Still, they have been quoted as saying (reshoring) “is not what it’s cracked up to be” even though their own data would dispute reaching such a conclusion.
The most important thing however, is incentives to move overseas are becoming less attractive and more companies are planning and considering reshoring. Also, reshoring is increasing year-on-year, and more companies are using the refined metric of TCO to evaluate the hidden risks/costs of offshoring.
The Reshoring Initiative Can Help.
The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S.