Despite the hype that the reshoring of manufacturing production is on the rise, the numbers show otherwise. That's the conclusion of the 2014 A.T. Kearney Reshoring Index, the first in a series of studies looking objectively at the rate and pace of the return of manufacturing operations to the U.S.
The A.T. Kearney Reshoring Index measures the change in ratio between U.S. manufacturing imports and gross output over time. As source material, it uses the aggregation of a decade of watching shifts in reshoring and understanding the reasons behind it, using primary data from a proprietary survey administered to senior executives of global corporations as well as reshoring information reported in the media. Respondents include C-level executives and regional and business heads, across all industry sectors.
The index depicts flows of capital, not shifts in physical assets or employment levels. It represents the choice that U.S. executives make between domestic production and offshore production to meet domestic and U.S. demand. It is intended to normalize changes in market demand: an increase in U.S. manufacturing does not equal an increase in reshoring. Manufactured goods flows are tracked over a 10-year period to show the change in ratio between U.S. manufacturing imports and gross output during that time period. The index is actually expected to show a year-over-year decline, lower by 20 basis points from 2013, as offshoring to foreign manufacturing markets outpaces reshoring.
Patrick Van den Bossche, A.T. Kearney partner and leader of the firm's Americas Strategic Operations Practice and co-author of the index, notes, "Our goal was to find out for ourselves whether companies are indeed leaning toward reshoring operations, and if so, what motivators are driving them. We've been following these questions with interest since 2010, and have a growing database of 700+ reshoring cases across all industries."
Pramod Gupta, A.T. Kearney principal and study co-author, commented, "While the so-called reshoring trend has helped improve the mood of U.S. manufacturing since the recession, the reality is that the import value of manufactured goods into the U.S. from 14 low-cost Asian countries has grown at an average of 8% per year in the last five years.
"The 2014 Reshoring Index is not only an indicator of U.S. manufacturing capital flow, but also how the U.S. stacks up in terms of attractiveness as a source of manufactured products versus countries like China, Bangladesh, and Cambodia," Gupta added.
Key highlights of the index include:
- The top three reshoring industries, as measured by the number of cases in A.T. Kearney's database, are electrical equipment, appliance,and component manufacturing, with 15% of the cases; transportation equipment manufacturing, with 15%; and apparel manufacturing, which previously had not been expected ever to come back, with 12%.
- Improvement in delivery time led the reasons executives gave in favor of reshoring, with quality improvement a close second, followed by brand/image.
- While there has been an overall lift in U.S. manufacturing for five straight years since 2009, imports of offshored manufactured goods into the U.S. have increased at a faster rate than any return of manufacturing operations to our soil, and, for the 14 top offshoring locations combined, amounted to $640 billion in 2013.
Those 14 top offshoring locations (China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia) are also included in the study, along with a tracking of the year-over-year change in manufacturing import ratio from 2004 through 2014.