Will Manufacturing Jobs Return to U.S. from China?

For manufacturing jobs to return to America, will federal, state and local governments change public policy to take advantage of economic developments in China?

With China’s gross domestic product dropping sharply, reportedly to 7.5 percent, vehicle sales down 1.3 percent, labor shortages, and the second-largest economy experiencing a real estate bubble with lower sales prices – it would appear China’s economic problems are worse than expected.

Plus, a study by a world-class consulting firm offers hope to regions in the United States beleaguered by high unemployment – the firm predicts labor issues in China mean U.S. firms will be less inclined to offshore jobs.

As some U.S. states develop reputations as low-cost manufacturing centers and China’s wages increase, offshoring of jobs is expected to decline by 2016, according to an international consulting firm. That’s the essence of a 2011 study by The Boston Consulting Group (BCG).

The firm’s report: “Made in the USA, Again: Manufacturing Is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring.”

As usual, BCG offers enlightening insights.

“With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly,” said the firm’s press release. “Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.”

That’s thanks to a labor-shortage issue.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

It’s a complex issue, but BCG further explained the rationale.

“After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states,” stated the press release. “And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered.”

Cost advantages in China will lessen

“Products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production,” according to BCG’s Web site. “Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.”

Sirkin, who authored “GLOBALITY: Competing with Everyone from Everywhere for Everything,” advised U.S companies to examine all the labor costs.

“They’re increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother—and that’s before taking into account the added expense, time, and complexity of logistics,” said Sirkin.

BCG said the reversal has started.

“Caterpillar Inc., for example, announced last year the expansion of its U.S. operations with the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas,” the press statement indicated. “Once fully operational, the plant is expected to employ more than 500 people and will triple the company’s U.S.-based excavator capacity.”

Caterpillar acknowledged why.

“Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.

Two other companies change course

“NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs,” said the consulting firm. “And toy manufacturer Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the U.S.”

U.S. unions, of course, have been an obstacle.

“Workers and unions are more willing to accept concessions to bring jobs back to the U.S.,” noted Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Support from state and local governments can tip the balance.”

Mr. Zinser said U.S. executives need to look a bigger wage-cost picture.

“If you’re just comparing average wages in China against those in the United States, you’re looking at the problem in the wrong way,” Zinser cautioned. “Average wages don’t reflect the real decisions that companies have to make. Averages are historical and based on the country as a whole, not on where you would go today.”

Another factor is labor shortage.

“In the U.S., we have highly skilled workers in many of our lower-cost states. By contrast, in the lower-cost regions in China it’s actually very hard to find the skilled workers you need to run an effective plant,” added Doug Hohner, another BCG partner who focuses on manufacturing.

China will continue as a major player in manufacturing U.S. products, but Mr. Hohner offers these forecasts:

  • First, investments to supply the huge domestic market in that nation will continue.
  • Second, in the absence of trade barriers that prevent offshoring, Western Europe will continue to rely on China’s relatively lower labor rates since the region lacks the flexibility in wages and benefits that the U.S. enjoys.
  • Third, even though other low-cost countries—such as Vietnam, Thailand, and Indonesia—will benefit from companies seeking wage rates that are lower than China’s, only a portion of the demand for manufacturing will shift from China. Smaller low-cost countries simply lack the supply chain, infrastructure, and labor skills to absorb all of it.

Public policy

My sense is the big question is whether government will start doing the right thing in public policy? Oops, that goes for unions, too, and the ostensible political motivations of the National Labor Relations Board (NLRB).

“I don’t make jokes. I just watch the government and report the facts.”
-Will Rogers

A brouhaha comes to mind – those issues over Boeing launching a manufacturing plant in South Carolina. For years, state government and union political activity gave the aerospace giant no option, but to look for a better locale-alternatives to build the 787 Dreamliner.

You’ll recall the disingenuous complaint by the National Labor Relations Board against Boeing. It took months to settle.

So we don’t forget, here was the issue:

An editorial, “The right way to win Boeing jobs for Washington state” in a Tacoma, WA newspaper, The News Tribune, made a salient comment: “The NLRB complaint – which alleges that Boeing retaliated against its workers for striking when it choose to expand in South Carolina rather than Washington – appears to be little more than an attempt to assuage battered union interests.”

In a similar editorial, “NLRB complaint against Boeing needs critical look,” The Seattle Times cited President Obama’s rhetoric about generating jobs.

“Really a president does not create manufacturing jobs. He creates policies that may encourage companies to create jobs — companies like Boeing, which has now had the creation of 1,000 jobs in South Carolina second-guessed by Obama’s National Labor Relations Board,” wrote the editorial writers.

“In its complaint, the NLRB is attempting to reverse a U.S. investment by the nation’s No. 1 exporter 17 months after the company decided to make it — after the money has been spent, after the equipment is set up and after 1,000 workers have been hired. In South Carolina, assembly of the first 787 is scheduled to begin this summer. For the government to demand now that the company move everything to another state shows no sense of practical reality,” the newspaper asserted.

Let’s hope BCG is right and the manufacturing jobs return. But more than political rhetoric, we need competence in government. If the right public policies are implemented, political and economic liberties will improve for everyone – not just the unions’ leadership.

From the Coach’s Corner, here are more thoughts on job creation: Will public officials listen to Intel’s CEO?

“I don’t make jokes. I just watch the government and report the facts.”
-Will Rogers


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 

Need a Job? The Economy and Offshoring Don’t Have to Be Obstacles

Why is there a scarcity of jobs for many Americans? In a technology-service economy, many people don’t have the skills that align with the openings.

There are other reasons, too.

Many businesses still don’t see an economic recovery, and they continue to reel from the effects of the severe downturn. Profits have been harder to achieve, especially for retailers, and under-employment for workers continues to be high. Human resources and advertising budgets have been cut.

ID-100286525 stockimagesThe situation was exacerbated when big banks and credit card companies started cutting credit lines and imposing stiff fees in undesirable usury practices.

For a boss planning a budget and workforce, it is certainly best to consider more than a macro-view of the economy. For an accurate snapshot, use discernment in the micro factors directly and indirectly affecting you. Listen closely to your customers.

That also means: Don’t be fooled about many companies exceeding earnings expectations on Wall Street.

Candidly, times are not necessarily good if those companies are merely cutting employee hours or laying-off workers and slashing costs to achieve profits. Profits created by stagnant wages adversely affect consumer confidence.

If you are a non-exempt employee – just like senior management – you should be aware of these issues. Higher profits do not equate with strong employment prospects, either. So, even if the GDP gets in the black, we still might not be in a true recovery.

What else should you do? Stay positive and passionately do your best to help your company make a dollar. And if your company lobbies government in the political arena, find why. It just might be to create an environment conducive to competitiveness.

Offshoring Job Losses

Many Americans have either been under-employed or jobless as the result of offshoring jobs, too. Just as automation replaced workers a few decades ago, look for innovation and productivity to increase as companies cut costs.

A study by The Conference Board and Duke University shows the number of offshoring by U.S. companies dramatically increased from 2005 to 2008 – 22 percent to 50 percent. What’s more, 60 percent of such companies planned to increase their offshoring.

Business has complained for years about too few Americans having degrees in science and math. The lack of talent and innovations in speeding products to the marketplace are the catalysts for the increase in offshoring.

Many CEOs believe innovation in engineering, research and development, development in technology, and knowledge processes will make their success possible. That’s why there’s been a vocal push to change immigration policy. (See: Can Immigrants Help Jumpstart U.S. Economy? Yes, Says Study.)

The shortage of American talent has prompted many small companies to offshore jobs. And the talent is not limited to China or India – talent is being utilized in Brazil, Egypt, Sri Lanka and Russia.

Jobs returning to the U.S.?

Conversely, many economists say jobs are coming to the U.S. as a result of the offshoring phenomenon.

It prompted two discussions:

One of the reasons for offshoring is competitiveness – due to a lack of economic and political liberty – a condition imposed by the federal and state governments.

Undeniably, many Americans have suffered hardship as a result of the recession and offshoring. However, remember the U.S. will recover and we are a vital part of an evolving dynamic global economy.

The best approach has always been the free-enterprise system. Embracing change is the only productive option for individuals to enjoy success.

The road to economic success will be easier if governments stop their heavy taxation and over-regulation. Instead, economic wisdom and best practices should be their goals.

Economic and political liberties are vital to the success of this nation – the effectiveness of economic policies depends on whether government has economic wisdom. That means allowing for economic and political liberties.

As I’ve written before: “Economic liberty is the freedom to make decisions in a free-enterprise system. Political liberty is possible when government stops its unproductive practices so entrepreneurs can have the necessary tools to create jobs and take full responsibility for their successes or failures.”

If you’re job hunting, don’t let the offshoring discourage you. If you are out of work or under-employed, it’s probably time for an assessment of your strengths, weaknesses, opportunities and threats. Then, consider a career that offers more value to an employer or learn business-startup skills if you want to be the big boss.

Here are some job-hunting tips:

From the Coach’s Corner, if all else fails why not launch a business? But be mindful of why startup companies fail and how to win. Don’t be surprised if you become more aware of the need for economic and political liberty.

“Courage is fear that has said its prayers.”

-Dorothy Bernard


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of stockimages at www.freedigitalphotos.net 

Seattle business consultant Terry Corbell provides high-performance management services and strategies.