Reviving the Reshoring Debate

This is an interesting article referring to a study of reshoring in 2014. It seems to be the case that there is a lot of talk about it, but lots of times companies decide not to do it.  And those that do often don’t add anywhere as many jobs as they give up abroad.  That’s often due to automation.

It is also consistent with the labor economics.  What the offshore enterprises have to offer is labor, and they have a shortage of capital. Offshoring from the US lets them use their comparative advantage in labor. And they will probably use more workers, or at least a similar number, as the facilities that were replaced in the US.  But if those jobs are again imported by the firm through reshoring, there will not be as many created, since the US has a comparative advantage in capital.  We’ll use more robots and automated facilities, and require less jobs in the manufacturing sector.

Source: Reviving the Reshoring Debate

Two questions arise.

First, how do we measure the benefit of reshoring, if we can’t just count the jobs?  These new facilities may create jobs in other sectors such as robot repair, software, automated equipment maintenance, and perhaps also in higher skilled jobs required to supervise the automated factories.  Which sectors should we look in?  We presented some research recently that attempts to answer this question, though it was oriented toward transportation and logistics clusters rather than manufacturing. Manufacturing is a bit more complex, I think.

Second, is there a game going on? One opportunity to wring concessions out of US communities and states is to offer to reshore some jobs.  Politicos are very sensitive to this kind of pitch, and if a firm tries enough locations, they may find one offering a huge tax break or other concessions to locate there.  Those might buy down the cost of reshoring to make it look short run attractive.  But it might not be a good investment for the community.

The one constant in globalization has been firms increasing their flexibility in where they operate.  Firms now actively seek to position themselves so they can take advantage of short term local dislocations in cost and currencies to shift production around at will.  What that implies is a lot more variability in the stock of jobs at a given place.  This trend will go on without question.

So regional and local planners had better think about the fact that the game is a repeated one, and giving away too much up front may result in pain later on.  It’s certain the firms are thinking that way.

3 responses to “Reviving the Reshoring Debate

  1. Sandy Montalbano

    Offshored jobs have diminished American employment opportunities, helped contribute to wage erosion, had a dramatic and negative effect on the domestic economy, and negatively impacted the environment through higher carbon emissions and other pollution from some developing countries and from long distance transport.

    Reshoring can improve the sustainability of the U.S. economy and reduce corporate carbon footprints on the world environment.

    Companies are recognizing that with the use of the refined metrics of total cost of ownership to uncover the hidden costs and risks of offshoring and reducing costs with sustainable strategies such as robotics, improved product design and automation they can increase competitiveness and manufacture profitably in the U.S.

    We see many companies moving toward localization. U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market. Reshoring is a good strategic move for many companies due to rising offshore wages, counterfeit parts, IP risks, quality issues, supply chain risk, long lead times and carrying costs of large inventories. By reshoring and shortening supply chains, companies can greatly improve responsiveness to customers, quality, innovation and R&D.

    The Reshoring Initiative Can Help
    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator (TCOE) can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

    Like

    • These are some good points, Sandy. I’m sure there’s good documentation on how the estimator works. Each firm will have to make its own decisions, of course, but a tool like this can make you think about factors you might not have considered.

      To the larger point, the US is just one of many countries a firm can operate in if it plans for it, and the comparative advantage may shift over time. large firms seem to be moving toward having a foot in many companies and the flexibility to shift production at a moment’s notice to any one of them where they see an advantage.

      It’s an example of Charles Fine’s notion of clock speed of industry. rapid flexibility in supply chains speeds up change, and gives a firm a competitive advantage. Followers may lose markets because they do not adapt fast enough.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s