- Despite rising costs, Chinese manufacturing remains extremely attractive for many products
- There is no massive rush to repatriate jobs to the U.S.
- Many OEMs are looking for alternatives to expensive coastal areas of China
- Increasingly attractive consumer markets are developing in Asia
- Much of the outsourced manufacturing to China is done without an analysis of total costs
Keith: 'The explosive growth of the emerging market consumer in Asia has more than made up for the slightly diminished attractiveness of China as a new or incremental outsourced manufacturing destination for western OEMs.'
U.S. Remains Attractive Market
The explosive growth of the emerging market consumer in Asia has more than made up for the slightly diminished attractiveness of China as a new or incremental outsourced manufacturing destination for western OEMs. Hungry for both top line growth and gross margin expansion, more OEMs are starting to look at the opportunity to service highly attractive emerging markets as part of their calculus around where they will place their outsourced manufacturing. This is not to say that U.S. manufacturing is finished, or even that the exodus of manufacturing jobs from the U.S. will continue unabated – this is just not the case.
I asked Mondello for his observation on U.S. manufacturing jobs and reshoring, figuring a guy with 140,000 manufacturing employees in 20 countries probably has some pretty good insights here. On the topic of reshoring Mondello said “…some manufacturing jobs are coming back to the U.S. ever so slowly. This will continue for the coming years and may possibly accelerate depending on cost curves, politics, and trade relations. Today we see the United States as a primary player for innovation, engineering creativity, logistics solutions, and leadership - we see China as the primary player for manufacturing. China still has the most efficient indigenous supply chain, especially when considering electronic hardware.” The innovation engine that is the U.S., the sheer size of our not quite flat world, and our 308 million consumers insure that there will always be a meaningful manufacturing base in the U.S.
Despite anemic growth of late, the U.S. is still a pretty darn attractive market. The tapped out consumer households in the U.S. still consume four times more dollar value of goods than the households of China, despite that country having a population well over four times that of the U.S. And despite the prevalence, and in some sectors the outright dominance, of outsourcing as a model for production, much of the manufacturing being outsourced to China today is clearly done so without a comprehensive analysis of the total costs of so doing. Every day my firm sees OEMs that have outsourced production offshore only to perpetually struggle with managing their outsourced supplier. In many cases companies realize a six to 10 point reduction in Cost of Goods Sold (COGS) on paper, which very quickly gets offset by a two to three point increase in Other Cost of Goods Sold (OCOGS) and the “peanut butter” spreading of another couple of points in ever expanding Opex. Despite all the advances in tools and systems for communication and collaboration, managing production half a world away from sales, product development and product line management functions can still present significant challenges – none of which are without cost.
2012 was clearly a year where the offshore/onshore debate was a tale of two shores. But much like the tale of those two cities chronicled by Dickens more than 150 years ago, the contrast between the two is very much in the eye of the beholder. So what did I say over a few cocktails to those holiday party goers looking for my seemingly informed opinion on the “shoring” and manufacturing jobs debate?.Hey, how about those 49er’s!!
Contributing Editor Ron Keith is chief executive officer for Riverwood Solutions, a supply chain consulting and managed services firm.
