Workforce Skill Level
The initial lure of lower labor costs may also hide the fact that labor competency is not always correlated with the available labor pool. With the exception of products that can be produced by low-skilled labor, the value to the manufacturer of labor competency always wins out over low cost. Countries that have realized the benefits of higher manufacturing employment are now facing a skilled labor shortage, due to ever increasing demand for these workers and the inability of their educational and training infrastructure to keep pace. Consider the vastly different skill sets required to assemble a simple consumer product versus those required for advanced composites assembly, CNC equipment, ION implants, or medical devices -- are these more easily obtained overseas?
Material Costs
Conventional wisdom held that China and other countries were the default low-cost option for offshore manufacturing. Now, companies are quickly realizing that reshoring is a competitive option when total costs of manufacturing are factored in. A fundamental component to this equation is the cost of raw materials, which are rising quickly. Base materials including copper, iron, chemicals and plastics have all seen sustained price spikes in the past 18-24 months. The market for critical components such as integrated circuits, LED and display panels has also experienced periodic shortages during critical times. Finally, fuel and energy costs have doubled in some categories since 2008, placing additional pressure on the manufacturing cost equation. Reshoring will not affect the cost of raw materials, but will remove some of the risk that highly competitive materials markets bring.
