Before, US firms often outsourced to countries such as India. This trend has now reversed. Onshoring is the new offshoring. Similarly, places such as Hong Kong are looking to the US as a way to lower costs. That is a dramatic shift from five to ten years ago.
–Steve Sapletal, Director of West Monroe Partners, in Mid-Market: The Crux of North American M&A by Firmex and Mergermarket.
In the early days of the multinational corporation experiment, sending jobs overseas made sense. Sure, there was a bit of kickback, but for the most part, consumers – especially those after inexpensive consumer goods, furniture, clothing, textiles – were happy for the bargains and big business was happy to tap into inexpensive wages and lower cost production abroad. But recent years have seen formerly attractive cheap havens like China lose their allure as labor costs rise and economic uncertainty takes its turn on the other side of the globe. Couple that with abundant low cost natural gas stateside and a heavy-handed local movement and you’re seeing a slow reshoring effort in the U.S.
Earlier this year, a survey U.S.-based manufacturers by the Boston Consulting Group found that 54% were actively considering relocating production from China to the U.S. while 16% said they already had relocated some manufacturing capacity stateside.
And then there’s foreign direct investment. In light of China’s slow growth, the country has looked to North America where recessionary issues have created industrial and commercial bargains.
As James Roddy from J.P. Morgan stated in the Firmex/Mergermarket report, “Deals from Asia-Pacific coming into North America are up around 100% so far this year. The drivers behind this are two-fold: a push and a pull. The push driver is Asia’s investment asset allocation strategy. There is a lot of capital in Asia now that is looking for direct investments. China Investment Corporation has established funds explicitly for the purpose of investing in overseas economies, and the US is a core focus of that. The pull driver is the fact that the US market is a great place to invest. If you look at the numbers, US GDP is growing at around 2%, while Europe is at about 1.5% and Latin America is basically zero. On a comparative level, the US is the place these Asian funds want to be.”
And according to the Reshoring Initiative, an industry-funded think tank, a combination of reshoring and foreign direct investment brought 60,000 manufacturing jobs to the U.S. last year versus 30,000 to 50,000 offshored. It’s not massive, but it’s a movement that could gain traction.
In light of these studies, The DealRoom examined seven multinationals reshoring or investing in U.S. manufacturing capacity and the reasons they’re doing so.
Airbus invests in Alabama
The Toulouse, France based airplane maker announced in September that it would be building a $600 million facility in Mobile, Alabama, creating 1000 jobs.
In addition to freeing itself form the euro-to-dollar exchange rate and getting a foothold in Boeing’s back yard, the move will tap into the inexpensive labor costs in a state where minimum wage is $7.25 (the lowest in the U.S.), strikes are rare and employment benefits are 30% cheaper than in Europe.
Caterpillar leaves Japan for Ohio
In August, Illinois-headquartered heavy equipment manufacturer Caterpillar announced it was moving its vocational truck manufacturing from Mexico to Victoria, Texas. The move will create 200 jobs said HOLT CAT president and chief operating officer Dave Harris in a statement.
“The impact goes beyond the initial 200 jobs or so Caterpillar is adding to the state’s economy, and speaks to the economic opportunity HOLT and Caterpillar jointly see in our region for expanded sales, parts support and services,” he said.
Keer Group opens plant in South Carolina
In 2013, Chinese textile maker Keer Group said it would build its first facility outside of China in Lancaster County, South Carolina. The $218 million investment will create over 500 jobs in the cotton-producing region.
“During our search, South Carolina quickly rose to the top of our list,” said Zhu Shan Qing, chairman of Keer Group in a statement. “We chose to locate our first U.S. facility in South Carolina for a number of reasons, which include the state’s workforce, proximity to cotton producers and access to the port.”
Apple launches American production line
Apple also threw its name into the “Made in America” pot in 2013, investing $100 million to build a Mac Pro product line in Texas.
“The product will be assembled in Texas, include components made in Illinois and Florida and rely on equipment produced in Kentucky and Michigan,” Cook told reporters. To cap it off, the computers are stamped with an “assembled in the USA” promise.
With that being said, the move is mainly symbolic given that the majority of Apple’s revenue still comes from the iPad and iPod, which are produced in China.
China’s Lenovo heads stateside
Taking a page from Apple’s playbook, Chinese computer maker Lenovo opened a manufacturing facility in North Carolina in mid-2013.
While the $2 million facility only added 115 jobs, the brand’s presence in North Carolina – it already has a research and development arm in Raleigh – is pegged to generate about one billion dollars in annual state revenue.
Over the past half decade, Brooks Brothers has worked hard to shed the “Made in China” logo so often attached to its clothing. And it has.
In 2013, the clothing company ramped up efforts producing 70% of its suits in Haverhill, Massachusetts, employing 475. It also produces its ties in Long Island City, N.Y., and 10 per cent of its shirts in Garland, N.C.
Walmart is the king of the reshoring
Few companies have made as much an effort in the reshoring realm as Walmart. According to the Reshoring Initiative, the retail giant has moved 4,444 jobs back to the U.S. from a myriad of countries over the past five decades.
But it’s Walmart’s devotion to starting an actual reshoring trend that deserves the most notice. The company has committed to purchasing an additional $250 billion worth of products made in the U.S. by 2023 to support the creation of American jobs.
The call has trickled down prompting suppliers to focus on U.S. production efforts. So far 38 companies have reshored to supply the chain.
Ultimately, choosing where to manufacture is not a one-way street. As the U.S. dollar strengthens producers may return to cheaper routes. But as technology improves and manufacturing capacity with it, don’t be surprised if big business overseas get a little homesick.