made in America, revisited
Eight months ago, this space was devoted to a column called "made in America (once again)" (DC VELOCITY, February 2008). Apparently, the column struck a nerve. It has since been cited by independent consultants in presentations to industry audiences and reprinted in a number of publications. It even prompted a conservative radio talk show host to seek an on-air interview with the author.
Perhaps it was the column's somewhat contrarian take on offshoring trends. In brief, it noted that, instead of ramping up production in low-cost Asian countries, several large multinational corporations (mostly European) are expanding their outsourcing programs to new shores. Those new shores are, in fact, our own shores, right here in the land of the free and the home of the brave.
The February column cited the French power systems maker, Alstom (which is opening a factory in Chattanooga, Tenn.), as an example of this trend. But there are plenty of others we could point to. As for why they're moving manufacturing to the United States, we contended then, and continue to maintain now, that this is a result of corporations' "abandoning their myopic focus on hourly wages and stepping back to look at the big picture."
Well, as 2008 has unfolded, the big picture has become somewhat clearer. Recent data and reports indicate that it's not just Europeans that see the value of setting up shop within the boundaries of the world's largest domestic market. It seems that American companies from various industry sectors are also starting to rethink their offshoring strategies.
Take the high-tech sector, for example. In an article titled "Time to rethink offshoring?" in the September issue of The McKinsey Quarterly, authors Ajay Goel, Nazgol Moussavi, and Vats N. Srivatsan take a look at the new economics of outsourcing. Over the last decade, they note, high-tech manufacturers steadily shifted production to Asia, lured by the prospect of low wages and fast-growing local markets. But since 2006, they write, "the favorable economic winds that carried offshoring forward have turned turbulent. The new conditions are undermining some of the factors that made manufacturers of every stripe ... move production offshore."
Whether or not this will trigger a migration of manufacturing back to the United States remains to be seen. But the "new conditions"—soaring oil prices, the declining dollar, and rising wages overseas, to name a few—are bound to change the calculus. Consider the effect on logistics costs alone. By one estimate, since 2000, when the price of oil was around $20 a barrel, the cost of shipping a 40-foot container from Asia to the United States has roughly tripled. It's the same story with containers of raw material moving in the other direction. The McKinsey authors report that it now costs about $100 a ton to move iron ore from Brazil to manufacturing locations in Asia— which is more than the price of the iron ore itself.
Although there are no hard numbers yet on how many companies are bringing operations back to the United States, recent federal economic data make it clear that some are doing just that. In the past two years, for instance, U.S. exports to China are up 20 percent, while imports to the United States from China are up only 5 percent. In other words, the volume of stuff we send to China is growing four times faster than the volume of stuff we're bringing in. Even a lowly journalist can see that the math is pointing to a shift ... a shift that might finally put to rest the perennial predictions of the demise of American manufacturing.
