Onshoring is definitely happening, 
but offshoring continues.

Being a killjoy can mean getting left off the invite list to the next party. But some things need to be said. One of them is that it’s time to start waking up from the delusions that have become entrenched in many people’s minds. There are too many of these delusions circulating right now, most of them coming out of the political sphere. As a result, reality is being pushed further into the background by a steady stream of myths and fables, from simple distractions to total crackpot.

One delusion gaining ground among the talking heads and pundits involves our manufacturing sector: that there is an onshoring trend—that is, work is coming back to the USA from low-cost areas. There have been many stories about this in the media over the last few months. The president of the United States has made specific reference to it. But believing there is a meaningful change happening is a delusion.

IMM has published stories of repatriated work, and we’re not apologizing for them. The stories are real and we think they are helpful to anyone competing against offshoring. However, it has to be stressed that offshoring, though it may be slowing somewhat, is not reversing direction, and that onshoring is still a much smaller activity. Thinking the tide is reversing is delusional, though I find it hard to blame anyone for wanting to hear some good news. The truth is, there is still much more work going offshore than returning onshore.

I say this having just seen hard data from a solid source that shows onshoring has actually declined during the past two years. I’m grateful to Scott Paul, executive director of the Alliance for American Manufacturing, for pointing me to the August 2010 issue of the Business Outlook Survey (BOS) conducted and published by the Research Dept. of the Federal Reserve Bank of Philadelphia. The survey measures regional manufacturing activity and includes indexes for general activity, new orders, and shipments. It’s concise and informative (find it at www.philadelphiafed.org). In its August survey, the Fed also asked some special questions regarding import/export and offshoring/onshoring, as it had done in previous August surveys.

About 30% of the firms responding said export’s percentage of their sales increased over the past year, a continuing trend. As for onshoring, only 4.5% of the manufacturers surveyed said they had brought work back to the U.S. since the start of 2010. A year ago, 6.2% said they had onshored work. Offshoring, too, was a bit less than last year, but still running at a higher rate than onshoring—9.7% had offshored work since the start of 2010, compared with 11.1% two years ago.

Work tends to go where it can be done most efficiently. The duty of top managers is to maximize the return to their shareholders. It’s certainly true that some corporations are bringing work back into North America, and probably true that many managers want a strong domestic economy, but at the end of the day the decision to onshore or offshore will be made for economic efficiency and profits. To think otherwise is delusional, and blocks us from dealing with the very real problems we face. —Rob Neilley