China is losing its attraction to OEMs looking to site new facilities, as interest in reshoring production to the United States remains strong, as do prospects for U.S. job creation. That's the short version of the latest survey results from Boston Consulting Group (BCG; Boston) that, for the fourth year, surveyed more than 250 U.S.-based senior manufacturing executives at large companies (sales greater than $1 billion).
"In a sharp reversal from just two years ago, almost a third of U.S. executives at large manufacturers say they plan to add U.S. production over the next five years for goods sold in the United States," said the BCG survey. Twenty percent said they are "most likely" to add capacity in China. However, BCG notes that when asked the same question in 2013, 30% of respondents said that China was the most likely destination for new capacity devoted to serving the U.S. market and only 26% said capacity would be added in the U.S.
"Even though China will remain a major exporter to the United States, which accounted for around 18% of total exports through the first eleven months of 2015, the suggestion that the United States has surpassed China as the most likely destination for new manufacturing capacity is striking," said BCG in commenting on the survey results.
The share of executives saying their companies are "actively reshoring production" increased by 9% since 2015 and by about 250% since 2012. This suggests that companies that were considering reshoring in the past three years are now taking action. By a two-to-one margin, executives said they believe that reshoring will help create U.S. jobs at their companies rather than lead to a net loss of jobs.
"These findings underscore how significantly U.S. attitudes toward manufacturing in America seem to have swung in just a few years," said Harold L. Sirkin, BCG Senior Partner and a co-author of the research, which is part of BCG's ongoing series on the shifting economics of global manufacturing, launched in 2011. "The results offer the latest evidence that a revival of American manufacturing is underway."
The 2015 survey also confirmed that factors such as logistics, inventory costs, ease of doing business and the risks of operating extended supply chains are weighing heavily in executives' decisions to bring manufacturing back to the United States. Seventy-six percent of respondents reported that a primary reason for reshoring production of goods to be sold in the United States was to "shorten our supply chain," while 70% cited reduced shipping costs and 64% said "to be closer to customers."
Michael Zinser, a BCG Senior Partner and co-leader of the firm's global manufacturing practice, commented, "the fundamental economic forces that are prompting many companies to reassess their global manufacturing footprint have not changed. Given the big difference in wage growth and productivity—the greater attention companies are paying to total cost—there is good reason to believe that the cost competitiveness of the United States compared with China and many other major export economies will continue to improve in the near term."
Other factors the BCG survey notes are the decreasing costs and improved capabilities of advanced manufacturing technologies such as robotics that are helping to make U.S. manufacturing "more attractive than economies whose chief advantage is cheap labor." Fifty-six percent of respondents said lower automation costs have improved the competitiveness of U.S.-made products compared with similar goods sourced from low-cost countries; 71% said advanced manufacturing technologies will improve the economics of local production; and 75% said they will invest in additional automation or advanced manufacturing technologies in the next five years.
Confirmation of the BCG survey can be found in the latest figures from the Robotic Industries Association (RIA; Ann Arbor, MI), which saw record orders and shipments in North America for the first nine months of 2015. Through September, a total of 22,427 robots valued at $1.3 billion were ordered from North American companies, an increase of 6% in units and 9% in dollars over the same period in 2014, which held the previous record.
Jeff Burnstein, President of RIA, commented, "Demand for robots is at an all-time high, and companies of all sizes in all sectors of the economy are realizing the benefits of automation." The trend also enables companies to create higher-skilled, better-paying, and safer jobs for their employees," added Burnstein.
It should be noted, however, that even though manufacturing executives plan to invest more in automation, they also indicated that reshoring is still likely to create new U.S. manufacturing jobs, according to the BCG survey. Fifty percent of respondents said they expect that U.S. manufacturing employment by their companies will increase by at least 5% over the next five years as a result of reshoring; 27% predicted a job increase of at least 10%.
Not all is positive, however. While the core indicators of U.S. competitiveness remain strong, recent turbulence in the global economic environment—such as collapsing energy prices and massive swings in exchange rates—have given some executives pause, noted BCG. The 2015 survey shows that executives believe that the United States will account for "a slightly lower portion of their companies' global production capacity" than they indicated in 2015. The ratio of those projecting net job increases versus net job losses, while still two-to-one in favor of increases, also declined since the 2014 survey, which found a three-to-one ratio in favor of job creation, said BCG.
The underlying drivers of this hesitation go beyond global macroeconomic volatility and include factors such as concerns about rising U.S. healthcare costs, federal and local regulatory uncertainty, increases in the U.S. minimum wage and unclear progress on tax reform, BCG commented. Such concerns are causing companies to reassess their long-term manufacturing strategies.
"Although interest in reshoring remains strong, this year's findings indicate that a number of companies are still holding back," added Justin Rose, BCG Partner and leader of the firm's North American Industrial Goods Operations team. "This reinforces the fact that the United States can't simply rest on positive global macroeconomic trends if it is to fully capture the opportunities created by the shifting economics of global manufacturing."