Manufacturing Savvy

10% is the Threshold for Moving Back to the U.S.

If you need a number to hang your hat on as to why your company should come back to the U.S. to manufacture, Hal Sirkin, senior partner and managing director, The Boston Consulting Group, gives you one.

“Ten percent is a key threshold,” he writes in an article on Huffington Post.

What I find interesting about this statistic is that he is placing a lot of variables in this one number.  While most companies have looked mostly at labor costs overseas as a justification for moving production, Sirkin adds a number of factors into his calculation.

“When you factor in the risks and realities of doing business in China -- weak intellectual property protection and rule of law, long lead times, and lack of proximity to key customers, among others--companies are willing to bring manufacturing back when the cost difference is in the single digits.”

While I have spoken with a number of companies who have cited a variety of reason for returning to the U.S. and have calculated such costs as energy, logistics, inventory (due to long lead times), I haven’t seen a particular number as a tipping point.

But Sirkin holds to this number and in fact predicts that certain manufacturing sectors will hit the 10% threshold over the next three to four years. These sectors include; computers and electronics, appliances and electrical equipment, transportation goods, plastics and rubber, machinery, furniture and fabricated metals.

And the good news, at least from a job perspective as companies hire workers for the new facilities or the expanded production lines, is that these goods account for about two-thirds of the annual $325 billion in imports from China, according to Sirkin. 

Here are some other articles on this topic.

Making the Case for Reshoring -- Offshore Risks

The Case for Onshoring

Leaving China:  How High Production Costs and Patent Infringement Turned the Tide

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