Re-Shoring Revisited: MIT Suggests May be about Market Strategy
Are manufacturers serious about returning production to the United States? A recent MIT Forum for Supply Chain Innovation survey shows nearly half of 156 U.S. manufacturers are considering it.
Last year was the third year high-technology manufacturing jobs left Asia and Latin American to return to the U.S., a practice sometimes called re-sourcing or re-shoring.
This survey included companies in other manufacturing industries, such as food and beverage and chemicals. Nearly 350 participants completed the supply chain survey, 198 of which were manufacturing-only. Most of those, or 156 in all, were companies whose headquarters are in the U.S.
But here’s the catch: While nearly half are in some way contemplating a move back to the U.S., only 15.3 percent of them are committing to the definite re-shoring of some manufacturing. The rest — 33.6 percent — are “considering” the idea.
While re-shoring is attracting a lot of attention in the mainstream press, it’s still difficult to tell just how substantial this trend will be and how it will impact manufacturing abroad.
For instance, a recent Economist article points out the number of firms identified as “re-shoring” manufacturing jobs to are under 100, and in many cases, the re-shored work constitutes only a small part of their actual manufacturing.
“The reshoring movement has to be kept in proportion,” the Economist warns. “Most of the multinationals involved are bringing back only some of their production destined for the American market. Much of what they had moved over the past few decades remains overseas. And for many of the biggest firms the amount of work that they are still sending abroad outweighs the amount that they are bringing back onshore.”
The MIT survey findings certainly don’t indicate a big commitment to re-shoring.
What’s more significant is the survey’s finding about why U.S. companies are considering re-shoring and the government could do to sway them toward returning to the U.S.
As we’ve pointed out in past B2B.com articles, the main driver for re-shoring tend to be problems with supply chains, including natural disasters and logistic disruptions. But the survey uncovered two new drivers: Improving the time-to-market and the ability to control costs. It’s worth noting, however, that a full one-third did not respond to that question at all.
When asked to name what government actions might make them more included to bring back manufacturing jobs, most companies named corporate tax reductions. Tax credits and R&D incentives tied for the second most popular response.
But before politicians get too excited about that finding, they may want to keep reading. MIT Professor and Forum Founder David Simchi-Levi points out that this may be less about leaving one country for better opportunities here than about a new manufacturing supply chain strategy.
“Of course, the fact that 15.3 percent of the companies are moving manufacturing closer to market demand and others are considering such a move does not mean the end of manufacturing in low cost countries,” Simchi-Levi said. “It suggests that we are in the middle of a transformation from a global manufacturing strategy, where the focus is on low cost countries, to a more regional strategy, where China is for China and perhaps other emerging markets, U.S. (or Mexico and Latin America) is for the Americas and Eastern Europe is for European markets.”