“Onshoring” / “Insourcing” / “Reshoring”
These are the names of an emerging trend to bring manufacturing production back to the U.S. that has been taken overseas (often to China) over the past several decades–primarily to take advantage of lower cost labor.
For a variety of reasons, bringing these jobs back has become a viable option in some cases. These include situations where the overseas wage advantage has eroded, transportation costs have risen, and currency valuations shifted to favor U.S. production. In addition, demands for just-in-time delivery, managing quality in supply chains, and reactions to environmental and political disruption in some overseas markets, have prompted companies to look at reshoring as an option.
Big consulting firms like Boston Consulting Group, Alix Partners, McKinsey, and Accenture have all studied the reshoring potentials. In some instances they advocated to their manufacturing clients that they seriously look at reshoring as a business option.
Reshoring also is very popular politically. President Obama has established an Insourcing Initiative, partly to leverage the experience of some of the big companies like General Electric and Caterpillar that have been in the forefront of reshoring. G.E. recently as announced that it will bring enough jobs back from China that it will be able to open a new appliance factory in Louisville, KY which will employ 1,100 people.
And it’s not only big companies that are reshoring. Just last week, Inc. magazine highlighted six smaller companies from southern California, to Denver, to eastern Pennsylvania to Florida that are bringing some jobs back (See “Made in USA: 6 Companies That Came Home,” Inc.com, by Eric Markowitz.
Within Northeast Ohio, we also have seen some reshoring examples from big and small companies:
1. Suarez Corporation Industries has brought back hundreds of jobs to NEO to produce its EdenPure space heaters. They’re now located in the Hoover Building in North Canton.;
2. Ford has indicated that it could bring several hundred jobs back from Mexico when it converts the Avon Lake Ford plant from van to truck production in 2013 (See “Ford investing $128 million in Avon Lake plant,” Cleveland Plain Dealer, December 6, 2011.
While all this is exciting, we need to put it in context. One caution is that the ratio of returning jobs to those that left is probably not going to be one-to-one. Many of the jobs that come back will be performed by robots—not people. This is not bad, because someone needs to maintain the robots and some higher paying jobs like these are better than no jobs at all.
Perhaps most importantly, we cannot forget that that we still have an increasingly global economy. There also are still situations where the labor cost differential is so substantial that some companies are still taking production overseas. We have seen this within the past several months in Northeast Ohio.
Also, it’s important to remember that not all the jobs that have gone offshore have gone there because of labor cost differentials. Many of the jobs were created in the production facilities that enabled companies to gain a foothold in the huge markets represented by China and India. This aspect of the globalization of the economy is going to continue and probably will increase.
If Northeast Ohio is to substantially benefit from reshoring, it will be important to make sure that NEO is a good place for the returning jobs to land—otherwise, some of them may end up elsewhere–in regions that are, or are perceived as, more hospitable to business. This means that we need to be as business-friendly as possible in terms tax and regulatory policy and in providing access to a qualified workforce.
We are encouraged that this seizing the reshoring opportunity is something that Governor Kasich and JobsOhio director Mark Kvamme are committed to doing. JobsOhio has helped Northeast Ohio develop its capacity to attract these jobs back to the region through the Team NEO-coordinated business attraction initiative. This work is complemented by the retention and expansion work being done by the five major chambers of commerce and regional economic development organizations in our region.
We at MAGNET are certainly committed to doing what we can do to help companies bring jobs back to the U.S., Ohio and our region. With that as a goal, MAGNET collaborated with TechSolve in delivering a webinar a few weeks ago that featuring Harry Moser. He is a former Clevelander who once worked with Acme Cleveland several years ago. Moser is now one of the key national leaders in the Reshoring movement in his role as head of the ReShoring Initiative.
In the webinar, Moser described a useful tool that he has developed to help companies evaluate the cost/benefits of reshoring—the Total Cost Estimator. This tool can be used by companies to calculate the real cost of doing business overseas and help objectively assess whether it makes sense to reshore. Moser indicates that about 40 percent of the companies that have used the tool find that it makes economic sense to consider reshoring.
We welcome your thoughts on reshoring as a opportunity for the region and for your company. Leave your comments below, or email me at email@example.com.