Report: Outsourcing Not To Blame For Manufacturing Shrinkage

When people talk about a perceived decline in U.S. manufacturing, outsourcing often gets the blame. However, a report from the Manufacturers Alliance/MAPI challenges that notion. Outsourcing, offshoring and corporate restructuring are not the primary cause of a shrinking U.S. manufacturing base, says the Arlington, Va.-based business and public policy research group. The decline in the number of U.S. manufacturing plants is a result of fewer business openings in the U.S. rather than of jobs being moved abroad, says Daniel J. Meckstroth, the alliance's chief economist.

The report notes that from 1999 through 2002, U.S.-based multinationals opened 246 facilities in foreign countries while the number of manufacturing plants in the U.S. declined by 20,000. "It is clearly not a case where large multinational companies are simply closing up shop in the U.S., displacing workers and moving abroad," Meckstroth states. "The shrinking number of manufacturing plants has come not from a spike in the rate of business closings, but rather from a decline in the rate of business openings. The rate of manufacturing plant closings has been relatively stable over a longer period of time," says Meckstroth.

Why are fewer factories being opened? Some blame goes to excess capital investment and a surge of mergers and acquisitions during the 1990s, both of which created excess capacity. The same applies with rising imports of manufactured goods. But Meckstroth also notes, "Lean manufacturing practices, Six Sigma programs to boost productivity and just-in-time inventory management all reduce the need for total numbers of plants and employees."

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