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Reshoring, FDI Reflect Confidence in U.S. Market
By Mark Shortt
The Reshoring Initiative's Data Report, released in April, reported that the combination of reshoring and foreign direct investment (FDI) added more than 171,000 jobs in the U.S. in 2017, up 2800 percent from 2010. Since that year, which marked a low in manufacturing employment, more than 576,000 manufacturing jobs have returned to the U.S. from offshore. Although foreign direct investment continued to create more jobs than reshoring, the difference between the two has narrowed since 2015.
"The FDI is moderately stronger than reshoring," said Harry Moser, founder and president of the Reshoring Initiative, in a phone interview. "There are more jobs reported by FDI than by reshoring, but the two are pretty close."
In a press release, Moser said that the Reshoring Initiative publishes its data annually to show that companies are successfully reshoring and encourage those who are not to re-evaluate their sourcing and siting decisions.
"With 3 to 4 million manufacturing jobs still offshore, as measured by our $500 billion/year trade deficit, there is potential for much more growth," Moser stated. "We call on the administration and Congress to enact policy changes to make the United States competitive again. Our Competitiveness Toolkit is available to help quantify the impact of policy alternatives, including a stronger skilled workforce, continued corporate tax and regulatory reductions, as well as lower U.S. dollar."
According to the report, the 171,000 jobs created by reshoring and FDI are about 90 percent of the 189,000 total manufacturing jobs added in 2017. That means about 10 percent of the total manufacturing jobs added were a result of new investment, or organic growth, by U.S. manufacturers that did not involve reshoring.
Statistics like these reflect, in part, a worldwide trend toward localization of manufacturing, helping to explain why more companies–both domestic and foreign–have decided to manufacture in the United States. Localized manufacturing refers to making a product, or most of the product, in the country or the region in which it will be consumed.
"Localization is a general trend around the world that applies equally well to Germany, the U.S., England, China, and India," Moser said. "The general trend is to make more things near where they're going to be consumed, rather than making all of one item in one location and shipping it all over the world."
Why are companies deciding to manufacture locally? It's the most efficient way for them to manufacture and allows companies to respond quickly to product-specific issues.
By manufacturing where they sell their products, companies can raise or lower their production volumes more quickly in response to changes in market volatility and demand. They can also be faster in making changes that adapt the characteristics of their product to the market's needs. When shorter distances separate a product company's design engineers from their manufacturing suppliers, communications are typically easier and changes to part designs can be implemented more rapidly by the suppliers producing the parts. And because communications between the companies' engineers tend to be more frequent, with face-to-face interactions more likely, they're critical to solving manufacturing dead ends and developing innovative processes and products. Delivery times, as well as cost of delivery, are also reduced.
"Localized manufacturing helps them (product companies) be lean, and it also helps them reduce their environmental footprint," said Moser. "They can be more sustainable by doing that."
An example of localized manufacturing via foreign direct investment in the U.S. is the recent move by GreyOrange, a Singapore-based, AI-powered robotics company to set up a headquarters, R&D center, and manufacturing facility in the United States to better serve local customers and meet market demands. The company, expecting the robotics segment of the materials handling equipment market to exceed $20 billion by 2024, sees the U.S. as being ripe for robotics innovation. GreyOrange is establishing its U.S. headquarters in Atlanta and its R&D center in Boston and has begun to set up a manufacturing facility to be completed in 2019. Over the next three years, the company plans to manufacture and deploy some 20,000 robots in the United States.
When discussing why companies are bringing their work back to the United States, Moser breaks the reasons down into two broad categories: proximity and cultural differences.
Proximity–manufacturing near a company's end market and suppliers–offers the advantages of quicker delivery, less travel, lower inventory needs, and the ability to launch new products more rapidly. It also promotes the general "peace of mind" associated with having fewer concerns about things like quality control, shipping logistics, and knowing that engineers can keep closer tabs on manufacturing.
For U.S. companies, manufacturing in China poses risks stemming from what Moser called cultural differences. These differences are country-specific, he said, and have led companies to bring their production back to America. "China has a higher frequency of concerns about intellectual property risk, about quality, about other forms of instability that you wouldn't find in Canada or Germany or England," he said.
Manufacturing in the U.S. provides another potential advantage for companies, both U.S.-based and foreign: the ability to put the Made in USA label on their products. The goodwill associated with the brand could boost a manufacturer's volume, especially if they're the only–or one of the only–companies that's making that type of product in America. It should also allow the company to charge a moderately higher price.
"Somewhere between 40 and 60 percent of consumers will pay 10 percent or more premium for a Made in USA product in the U.S.," said Moser. "So, if you can sell more and sell it at a higher price, that's good for a manufacturer, for a product company."
For many companies, the real eye-opener is this: Even when U.S.-made parts command higher prices than those produced overseas, the overall cost of producing them in the U.S. is often more competitive with offshore sources than they realize. To get a more complete and accurate comparison of domestic versus offshore costs, Moser strongly urges companies to use the Reshoring Initiative's Total Cost of Ownership (TCO) Estimator, a free online calculation tool that analyzes 30 cost and risk factors for each manufacturing source. Recognized by the U.S. Department of Commerce (https://acetool.commerce.gov/toolbox), the TCO Estimator aggregates all relevant cost and risk factors to help companies make more informed, objective sourcing decisions.
Companies can find the TCO Estimator here: http://www.reshorenow.org/tco-estimator/
When speaking about the advantages of manufacturing in the U.S., American manufacturers often refer to the "peace of mind" that comes with knowing that their intellectual property is not likely to be stolen. Peace of mind may also refer to the convenience of shipping logistics, superior quality control, and the ability for engineers to keep closer tabs on the manufacturing. Moser agrees that there are good reasons for domestic manufacturers to have peace of mind but goes one step further.
"We believe that you can quantify the benefits," Moser said. He believes that for about 25 percent of the work that is offshore, companies that use the Total Cost of Ownership Estimator correctly will find that they can be more profitable by bringing that work back to the United States. "So, they'll be more profitable and have peace of mind."
"In my ideal world, I'd be really happy if we could increase productivity 2 percent or 3 percent a year and grow manufacturing employment 2 percent per year," Moser said. We're increasing the pie by an additional 2 or 3 percent by bringing the work back from offshore, and we can do that for maybe 20 years because our trade deficit in manufactured goods equals about 40 percent of current U.S. manufacturing.
"So, we can think of that as an insurance policy, like an asset or inventory to draw on. We can have both increased productivity and increased manufacturing employment, so we don't have to fall into the hysteria about 'Tax the robots because they're going to take all of our jobs.' Instead, we can have both productivity and, therefore, higher wages, and more manufacturing jobs."
What are some of the steps that smaller and mid-sized manufacturers in the U.S. can take to maximize the prospects for their own success and those of American manufacturing in general? Moser mentioned three areas: efforts to ensure a skilled workforce; investment in new equipment; and use of the Total Cost of Ownership Estimator.
"First: skilled workforce. It's the employer's responsibility to have the skilled workforce. Society has to provide a literate, numerate high school graduate, but then it's really the company's job to find them, start the apprentice programs, and do whatever it takes to make it happen."
Moser said that American companies can do a better job of investing in new equipment. Companies in Germany and China, he said, tend to bring new machinery into their plants every five years or so. It's tough to compete against companies that have the newest and the best equipment that's being run by better-trained ex-apprentices, he said. "The Chinese are investing about four times as much per year in machine tools as is the United States. How can we hope to stay ahead of them or catch up with them in terms of cost, if they are investing a lot more than we are?"
The TCO Estimator is free to use online. For job shops, it can be used for making their own decisions, like 'Where should I buy the mold–U.S. or China?' It can also be used as a sales tool, Moser said. He gave the example of Morey Corp., a Chicago-area company that assembles circuit boards.
"They came to me a year and a half ago and were about to lose their best U.S. customer to a lower price Chinese competitor. Tony (from Morey Corp.) and I did the analysis together. Tony took it in to the customer, and I have a quote from him saying that was key to saving a $60 million order."
Moser remains optimistic about the future of American manufacturing.
"Most of my stocks are in U.S. manufacturers, so yes, I'm optimistic. And I'm staying here–I'm not moving to Switzerland or Australia."
Import Substitution Program Works to Replace Imports with Local Production
Moser recommends that U.S. companies check out the Import Substitution Program (ISP), which enables economic development professionals to replace imports with local production by helping U.S. companies decide to reshore and helping foreign companies decide to invest directly (FDI) in a U.S. region. Described as a "customized action plan that is a catalyst for FDI and reshoring," the program is available to help Economic Development Organizations (EDOs) and Manufacturing Extension Partnerships (MEPs), trade associations, manufacturing companies, and equipment suppliers. More information on the program is available here: http://reshorenow.org/import-substitution-program/
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