The C.E.O. of Airbus, Fabrice Brégier, was recently quoted as saying that, “[for skilled workers] China is no longer a low-cost country.” As this and other realities over manufacturing in the Middle Kingdom start to hit home, executives worldwide are now re-evaluating their strategies; for many the new buzzword is “reshoring”.
The Harvard Business School last year conducted a survey that revealed many American firms are still deciding against basing activities on their home soil. Yet, further research into American manufacturing companies by the Boston Consulting Group in April of last year showed 37 percent of firms with annual sales above US$1 billion were planning or actively considering shifting their production facilities back from China to America.
The offshoring that built up global reliance for manufacturing on China began approximately two decades ago. Lured by cheap labour costs and a range of tantalising other incentives, a honeymoon period ensued; blind were many to the potential fallout from their forced transfer of sophisticated technology to potential Chinese competitors, to increased logistical costs plus timeframes that largely offset the savings realised in HR, and to political backlash at home as jobs lost started to worryingly equate to a drop in economic growth.
Some are beginning to take off their rose-tinted glasses. Labour costs in China have in the last two years, relatively speaking, gone through the roof. Employers are now saddled with much the same burden carried by them in developed countries; a minimum wage and social security responsibilities are just the beginning.
Those for whom the headache of manufacturing in China has turned into a migraine have been looking elsewhere; Vietnam and Bangladesh have cheaper labour but do not have the developed infrastructure to which China has so deeply committed itself. Indeed, some are going as far as to say, “There is no new China”, instead pointing the way toward Mexico and Poland, with their relatively low wages and locations close to major markets.
For these new “reshorers”, cost is not the only issue. A production base that speaks a language in common with their headquarters can cut months off development time and respond more quickly to consumer trends. Bathrooms.com is a UK based bathroom maker who can bring new designs to the showroom in just six weeks with their production based back in the UK compared with six months when they had their manufacturing facility in China. In an interview with The Daily Telegraph, Ian Monk, C.E.O., said, “We really want to be on the edge of design and, through partnering with firms in the UK, the process has been a lot faster and a lot less painful”. The company has already reshored half of its cabinetry and furniture manufacturing and believes that some 80 percent of total production may well end up back in Britain by sometime in 2015.
More often than not there is a multitude of reasons behind a company deciding to reshore. For Sleek Audio, a headphone manufacturer, these ran the gauntlet from poor quality to the difficulties in travelling overseas. Jason Krywko, one of the company’s founders, told Fortune, “It became very difficult and taxing”. With their production back in St. Petersburg, Florida, he added, “Now we control the quality of the product. No more waiting for production has been a wonderful thing.”
In the longer term reshoring will in addition be boosted by the use of advanced manufacturing techniques that promise to alter the economics of production, making it a far less labour-intensive process. Robotics is another area that favours the potential reshorer, costing almost the same all over the world, while prices for such technology have also fallen by up to 50% over the past few years.
The issue of reshoring is also a political hot potato, yet one that if handled right can manifest itself as very positive PR. Lenovo says that its decision to reshore computer-making to North Carolina was a way of looking after the firm’s reputation as well as creating direct business benefits. General Electric (G.E.) last year moved its manufacturing of washing machines, fridges and heaters back from China to a factory in Kentucky which not long ago had been expected to close.
While more and more manufacturers are seeing the realities of savings on transport and raw materials which offset higher labour costs, it also remains arguable that much of the current wave of reshoring remains largely symbolic. The day the two balance each other out may well be the the day when zero net offshoring becomes a new post-China honeymoon reality.
