The ‘offshoring’ movement had a profound deleterious effect on the U.S. job market. Entire industries such as electronics, textiles, toys and shoes shifted to China. Consequently, traditional blue collar manufacturing jobs dramatically shrank in number. Employment in manufacturing declined from 32% of the workforce to about 9% at present. The question then arises if some of these jobs will return to the U.S.
If offshoring in manufacturing took jobs to China with its superior supply chain management, modern infrastructure and skilled labor, outsourcing in services worked in India’s favor on account of its English speaking population and prevalence of technical education.
Although still only a trickle, ‘reshoring’, of manufacturing jobs is shifting some jobs back to the U.S. One survey by the Boston Consulting Group reported that 37% of large American employers were contemplating transfer of manufacturing from China to the U.S. Local U.S-based production is gaining ground on account of varied factors such as a lower logistics and inventory buffer, weaker dollar, lower transport costs and cheaper energy at home.
Further, with wages going up over 15% each year in China along with stagnant pay in America, the wage differential is shrinking. In any case, the share of labor in total manufacturing costs has fallen to as low as 20% in some industries. In such a scenario, low wages are not vital any more for manufacturing widgets.
While reshoring to manufacture small lots in America costs more, the benefits are realized in the form of better response to the consumer, real-time integration of inputs from R&D and marketing, increased goodwill and positive publicity in America. Then, many companies are fond of segmenting the market so that they are able to service American buyers from the U.S. and meet Asian requirements from its hub in China. The just-in-time production model is in vogue.
It is estimated that well over two million total jobs may be created in the U.S. over a period of time but many of these jobs will need sophisticated skills. Low paid Chinese workers were sought by American companies until robots operated by trained American workers at Caterpillar’s (CAT) East Peoria, Illinois plant were able to do the work for less. The U.S. has evolved to become an advanced production hub in other high profile cases as well. Foreign multinationals, such as Airbus, Honda and Toyota have set up production facilities in America.
Reshoring is already under way with 3M Company (MMM) shifting some production back home. Apple (AAPL) is slated to launch production of the Mac in the U.S. In a well publicized move, General Electric Company (GE) will create close to a 1,000 jobs in Kentucky where it will manufacture water heating equipment.
With regard to services, again most of the mundane jobs which could be offshored have already been exported leaving only the cerebral output in the U.S. The reshoring phenomenon has not taken off in services to the same extent, except for call centers which are facing demise in India partly due to accent barriers. Delta Air Lines Inc. (DAL) recently transferred 2,000 call center positions from the IT Capital, Bangalore to the U.S.
Reshoring is a trend whereby some of the lost jobs will drift back to America. Companies are also beefing up their staffing in the U.S. as a part of their normal business. Organizations such as software giants International Business Machines Corporation (IBM) and Cognizant Technology Solutions Corporation (CTSH), who successfully compete with Indian software exporters Infosys Ltd. (INFY) and Tata Consultancy Services, will recruit thousands in places like India while also increasing headcount in the USA.
In the end, companies doing business in America realise that the ‘Made in USA’ tag holds immense consumer appeal, and not just among Americans.
APPLE INC (AAPL): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
COGNIZANT TECH (CTSH): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INFOSYS LTD (INFY): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
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