Reshoring Gives Economic Hope to Manufacturers
Offshore outsourcing has become one of the hot button political issues of the day. Especially in light of the U.S. economic downturn, there is a desperate need for more jobs for American workers, while at the same time companies are looking for ways to save money to keep themselves afloat. But now it looks as though reshoring might be an idea that makes sense for both sides, making reshoring a trend that just might stick.
The OffShore Outsourcing Controversy
Off-shoring in the manufacturing, customer service, and tech industries has been happening for some time now and opponents feel there are far more negatives than positives to offshore outsourcing (delays, hidden costs, quality control), while others see nothing but an effective strategy for keeping costs down.
Offshore Outsourcing’s Hidden Costs
Over the years, the biggest argument for offshoring is that it provides inexpensive labor and saves companies money. But does offshoring do more harm than good? Between demands for higher wages overseas and rising fuel costs (which impacts shipping), offshoring often proves to be economically impractical.
Hidden costs add up for manufacturers, and a lengthy supply chain negatively impacts their bottom line. For example, many overseas companies will not ship the products they make until they receive full payment. However, reshoring can resolve these logistical issues by shortening supply chains and improving cash flow.
Rising costs, especially in China, play a deciding factor in the offshoring versus reshoring debate. According to a study by the Hackett Group, companies are looking at reshoring 20% of their offshore manufacturing between 2012 and 2014.
Offshoring also raises the question of customers’ needs. According to a survey by Accenture (a market research firm) of 287 manufacturing companies, U.S. manufacturers want to bring operations closer to home, in order to provide better service to their customers. A common complaint with offshoring is language and cultural barriers, which complicate communication and delay production.
Can Reshoring Save American Manufacturing?
As the reshoring trend takes hold, with more and more U.S companies beginning to move away from offshoring, some say reshoring could mean “Made in the USA” represents new hope for the manufacturing industry and could play a significant role in America’s economic recovery.
The U.S. Bureau of Labor Statistics reports 11.96 million manufacturing jobs in June 2012 – an increase of more than a half million new jobs as compared to 2010. This is a promising forecast for unemployed workers who seek careers in manufacturing.
Not only is reshoring a smart economical move, but it protects manufacturers by decreasing compliance issues. Since trade secret theft can be a big concern, reshoring reduces intellectual property and regulatory risks. Another concern is the impact of natural disasters. After the earthquake and subsequent tsunami in Japan last year, American-based companies are hesitant to outsource to Asian countries.
Reshoring also trickles down to state and local levels. Many state and local governments provide tax breaks for domestic manufacturers, which provide further incentive for manufacturers to keep it local.
Manufacturers, who are often criticized for outsourcing labor to third world countries with poor working conditions, can now keep a more watchful eye on labor laws in their own backyard. And for those companies who want to take their “good citizenship” role one step further, by decreasing their carbon footprint, keeping operations in the U.S. allows them the additional goodwill of consciously reduced environmental impact.
In the end, as manufacturers continue to face rising production costs and tough competition, the trend towards reshoring just makes smart business sense for U.S. manufacturers.
Guest post by Derek Brink, V.P. of Sales and Marketing at Packaging Incorporated, a 55 year old packaging and collated fastening distributor that specializes in innovative solutions for all industries needing “inside the box” product protection and voidfill, “outside the box” load containment packaging and collated fastening.