Research Alert: Reshoring of Some Chinese Manufacturing Jobs Becoming Likely As Cost Gap is Expected to Shrink to Just 16 Per...
24 May 2012 - 11:30PM
Business Wire
The tide has begun to turn on the flow of manufacturing jobs
from the U.S. to China and other low-cost countries, according to a
new study from The Hackett Group, Inc. (NASDAQ: HCKT). Some
companies are already reshoring a portion of their manufacturing
capacity, and this trend is expected to reach a crucial tipping
point over the next two to three years, as the total landed cost
gap between the two nations continues to shrink, driven in part by
rising wage inflation in China and continued productivity
improvements in the U.S.
At the moment, China remains a manufacturing powerhouse, with
nearly 75 percent of the companies surveyed having some
manufacturing capability in China for at least three years, either
directly or through contract manufacturers. The Hackett Group
estimates that Chinese manufactured exports to the U.S. currently
support between 15 and 20 million jobs in China.
The Hackett Group's study offered significant hope for the U.S.
jobs market. The study found that companies are exploring reshoring
as an option for nearly 20 percent of their offshore manufacturing
capacity between 2012 and 2014. This repatriated capacity could
roughly offset the jobs that will otherwise move offshore,
indicating that the great migration of manufacturing offshore over
the past several decades is stabilizing.
Reshoring is expected to become more viable with each passing
year, as the total landed cost gap of manufacturing offshore
shrinks. The Hackett Group's research found that the cost gap
between the U.S. and China has shrunk by nearly 50 percent over the
past eight years, and is expected to stand at just 16 percent by
2013. This trend is largely driven by rising labor costs in China,
as well as rising fuel prices globally, which affects shipping
costs.
"This is good news for the American worker as growth in the U.S.
manufacturing sector keeps more high-paying jobs at home," said
David P. Sievers, Principal, Strategy and Operations Leader for The
Hackett Group.
The research found that the shrinking total landed cost gap
could create a tipping point resulting in an acceleration of
reshoring. "As the total landed cost gap falls below 15 percent,
the economic opportunity will require more companies to rebalance
their supply chains and move capacity back closer to customers in
the U.S.," continued Mr. Sievers.
According to published reports, many large companies have made
public plans to reshore portions of their manufacturing to the U.S.
over the past two years, including Caterpillar, Nissan, NCR,
Yamaha, Ford, and Electrolux. Earlier this year, both Boeing and GE
said they were committed to moving parts of their offshore
manufacturing capabilities back to the U.S.
Another significant finding from The Hackett Group study is the
increased movement of lower-value manufacturing from China to other
developing economies as companies under margin pressure search for
lower wage rates outside of China. Countries including India,
Thailand, Vietnam, and Brazil continue to successfully grow their
share of global manufacturing as they become more cost effective
countries for manufacturing. "The cost increases in China are
impossible for companies to ignore," said The Hackett Group Chief
Research Officer Michel Janssen. "As Chinese wage rates rise,
companies are looking to maintain their competitive edge by either
bringing that production closer to developed markets, moving it to
lower wage countries, or increasing productivity in China."
The research described here is available, with complimentary
registration, at:
http://www.thehackettgroup.com/research/2012/reshoring-global-manufacturing/
About The Hackett Group
The Hackett Group (NASDAQ: HCKT), a global strategic business
advisory and operations improvement consulting firm, is a leader in
best practice advisory, business benchmarking, and transformation
consulting services including strategy and operations, working
capital management, and globalization advice.
Utilizing best practices and implementation insights from more
than 7,500 benchmarking studies, executives use The Hackett Group's
empirically-based approach to quickly define and implement
initiatives that enable world-class performance. Through its REL
group, The Hackett Group offers working capital solutions focused
on delivering significant cash flow improvements. Through its
Archstone Consulting group, The Hackett Group offers Strategy &
Operations consulting services in the Consumer and Industrial
Products, Pharmaceutical, Manufacturing, and Financial Services
industry sectors. Through its Hackett Technology Solutions group,
The Hackett Group offers business application consulting services
that help maximize returns on IT investments. The Hackett Group has
completed benchmark studies with over 2,800 major corporations and
government agencies, including 97% of the Dow Jones Industrials,
86% of the Fortune 100, 90% of the DAX 30 and 48% of the FTSE
100.
More information on The Hackett Group is available: by phone at
(770) 225-7300; by e-mail at info@thehackettgroup.com.
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