Will American make its way back into leading manufacturing status? A report by the Boston Consulting Group indicates that the U.S. will see increases in manufacturing over the next couple of years as parity is achieved due to lower natural gas prices, stagnated wages in the U.S. and higher costs overseas. With a decline of energy costs from oil shale dropping to 50% and increases in the cost of manufacturing in countries like China there is much to cheer in the U.S. The good times can roar again.
American workers are becoming more productive, Chinese workers are more expensive, and the associated costs of manufacturing overseas have risen. A report by the Congressional Research Service found that the U.S. share of global manufacturing declined 30% in 2002 and that number dwindled to 17.4% in 2012 (1). The new report by the Boston Consulting Group indicates that the costs of manufacturing in the U.S. versus many other places like China will be about the same giving the U.S. advantages.
At present the advantage of producing products in low cost countries such as China and Asia is less than 5% (2). The U.S. and Mexico are starting to look like great places to manufacture items again. Mexico has had some increases in wages but their productivity has risen much more making them a local cheap labor supplier (3). The U.S. as a producer of high technology and advanced manufacturing with a regional partner in Mexico is covering both the high and low demographic markets of production.
Each region of the world has some high and low cost manufacturers. Large multi-national firms can move into areas that seek them the best advantages. These advantages can come from a whole range of factors that may include production costs, labor costs, labor skill, infrastructure, tax rate, telecommunications, science development, shipping costs, etc… They have also not considered economically suppressed areas within the U.S. that could benefit from increased investment while being supported by stronger tertiary areas.
Many companies are likely to move back to economically stable nations. The U.S. with its increasing competitive costs and relatively stable political structure can be attractive to large multi-national firms. If a windfall of re-investment in the nation comes forth it will likely adjust the shipping and distribution channels across the world to ensure that more products move in and out of the country before heading to their final destinations. Asia will also likely become a larger consumer base where products are sold and a slightly slower manufacturing base where products are built.
Boston Consulting Group (2014). Made in America, Again. Why Manufacturing Will Return to the U.S. Retrieved April 25th, 2014 from https://www.bcgperspectives.com/content/articles/manufacturing_supply_chain_management_made_in_america_again/