Economic conditions, natural resources and technological innovation are making it harder for manufacturers to "justify moving jobs offshore," according to a new report by Reynders, McVeigh Capital Management.
Three drivers are responsible for "breathing life back into manufacturing," according to "Workforce Rising: Why U.S. Manufacturing is Poised for a Comeback," authored by Charlton Reynders and Patrick McVeigh.
Offshoring to Homeshoring
Companies are turning from offshoring to homeshoring as the cost advantages of moving production to China and other locations become less significant. The wage gap between China and the U.S is shrinking, the report notes. Wages in China are rising at a predicted 15% to 20% annually while U.S. wage rates are growing at only 2%.
Higher oil prices have pushed transportation costs dramatically higher, the report notes. "By reallocating resources to the U.S., companies can reduce the distance to the point of sale and eventually benefit from more accessible, cheaper fuel in domestic natural gas," the report states.
Industries are adopting a more holistic view of production, according to the study, by using Total Cost of Ownership (TCO). TCO includes in cost evaluation "the burden of controlling quality and delivery, transportation, oil consumption, inspection of labor, inventory carrying, and freight and packaging." Companies that use TCO "find it is cheaper and more predictable to keep manufacturing close to home," the report states.
Resources Spur Momentum
Water stress is a global issue and the U.S. is well-positioned to address it. The report notes that the U.S. has the largest reserves of water on the planet. Moreover, there is "significant growth in domestic companies focused on conservation and desalination technology - both of which will be critical to augmenting the fresh water supply."
Natural gas, much of it coming from shale formations, could generate domestic supplies for 120 years. The report states this would not only help with transportation costs but also may give "U.S. manufacturing a competitive refooting, which will in turn stoke industrial demand." The report cites an estimate by PricewaterhousCoopers that natural gas investments could create 1 million U.S. manufacturing jobs in the coming 15 years.
Technology & Innovation
3D printing, also known as additive manufacturing, could "transform entire industries," the report notes. It may streamline manufacturing and make it more efficient by "vastly" reducing production liens and wasted material. The report argues that 3D printing could unleash a wave of innovation, with "millions of innovators in millions of garages - each with a 3D printer on hand."
While the report does not foresee a "quick fix" for U.S. manufacturing, it argues that manufacturing will return as "China struggles with growing infrastructure and the emergence of its middle class; as industries built around U.S.-based resources solidify; and as innovation brings production to new levels of efficiency."