Boosted by productivity gains and higher costs in competitors, including China, U.S. manufacturing exports have grown at their fastest rate since the late 1980s.
As we close out 2011 and start thinking about 2012, US manufacturing is getting positive reviews in many places. Joel Kotkin ranks the cities best prepared for a manufacturing recovery. Joel credits improved competitiveness for a return of manufacturers.
Randy Myers looks into the reasons for the ongoing resurgence of manufacturing, providing some details behind the improved US competitiveness. First he cites annual wage inflation in China of 15-20% for closing the gap on labor costs.
While wages account for only a fraction of the total cost of many goods, that still means the ultimate savings from outsourcing to China will, for many products, fall to the single digits.
Next up are IP theft concerns – with manufacturers finding Chinese partners adding their own plants to produce competing products with purloined designs. Subsidizing the competition is a tough cost to calculate, but one now considered more frequently in deciding where to produce.
The final factor is the largest. Transport and inventory carrying costs now exceed labor savings from offshoring.
found itself having to carry more inventory once it started manufacturing in China, just to account for the six weeks it took for new product to reach its warehouses… [vs] as little as two to three days of inventory for many of its products. It also has dramatically pared transportation costs.
TM Lutas expands on the benefits of local production versus offshoring by identifying a new path for US Manufacturing growth.
Methods used by “catch up” countries to do technology and expertise transfer from the US are not one way processes. We can do it in the other direction.
In his example, find something not manufactured in the US, start in China to learn their process, then duplicate here. In all US manufacturing can expect to grow from increased competitiveness, return of offshore production, and onshoring production of new goods. Further, this growth could generate 2-3 million jobs and a much brighter 2012.