Why Reshoring is Good for Business

Publicity given to the hidden costs of offshoring appears to be having an effect, as companies make strong business cases for reshoring based on total cost analyses.

Mark Shortt
Editorial Director
Design-2-Part Magazine

Where there's challenge, there's opportunity; and we all know how challenging a road American manufacturers have had to travel since offshoring began making inroads in our industrial base decades ago. And there's absolutely no doubt that in U.S. manufacturing today, opportunity is knocking.

You can see it in the numerous companies that are expanding, building new facilities, and affirming their commitment to manufacturing in the United States. You can certainly see it in the growing number of companies that are reshoring, defined by the Reshoring Initiative as "bringing back the manufacture of products that will be sold or assembled here" [in America]. And you can see it in the increased attention that investors—private equity firms, venture capitalists, investment banks, and even mutual funds—are paying to domestic manufacturing markets.

Expansions and New Facilities

Investments in automation and robotics are not only enabling manufacturers to improve quality through elimination of human error, but are also helping them stay competitive on price versus overseas sources. Erie, Pa.-based Plastikos and its sister company, Micro Mold, announced in February that they would be investing $1 million in capital expenditures in 2013 to increase cleanroom molding and precision moldmaking capacity. In addition to increasing its cleanroom molding capacity by 50 percent, Plastikos plans to increase efficiency through investments in automation that include end-of-arm tooling robotics and automated inspection programming.

Polymer Corporation, a plastics manufacturer specializing in liquid resin cast parts and highly engineered, injection molded and machined parts and assemblies, announced the opening of its new 92,000-square-foot injection molding facility in Palmer, Mass., earlier this year. Besides allowing Polymer Corp. to run highly efficient operations, the new facility provides additional capacity and represents a convenient location for its customers. Solar innovator 1366 Technologies opened a new, 25 MW wafer manufacturing facility—a 42,000 square foot factory that will employ 100 people—in Bedford, Massachusetts, in January. According to the company, the opening of the new plant represents "the final step in the path to commercialization of the company's Direct Wafer^TM technology, a transformative manufacturing process that produces a uniformly better wafer at half the cost." And in Lexington, Nebraska, agricultural equipment maker Orthman Manufacturing broke ground last August on a new 115,000-square-foot manufacturing facility that's expected to create 100 new jobs in the community. These are just a few of the many U.S. based companies taking advantage of growth opportunities.

The Reshoring Opportunity

When practiced widely, reshoring can pack a powerful punch in redressing the economic woes wrought by decades of offshoring. We're really only seeing the tip of the iceberg now, as companies begin to incorporate new tools, such as the Reshoring Initiative's TCO Estimator^TM, for analyzing the "offshoring versus reshoring" issue before making their decisions. And it's becoming clear that companies are making business decisions, rather than sentimental choices, to bring their manufacturing back to America. More and more, their decisions are based on objective cost analyses that take into account all relevant costs—including hidden costs—of doing business overseas versus in America. By doing the math right, companies are beginning to see and appreciate the bottom line benefits of bringing manufacturing work back to the U.S., and as a result, have started to bring work home in greater numbers.

Moving manufacturing closer to a company's design and engineering facilities enables companies to cut a whole array of costs associated with the logistics of product redesign—including transportation. By enabling face-to-face collaboration among designers, manufacturing engineers, and shop personnel, it makes it easier to solve engineering problems, as GE discovered before moving a substantial portion of its appliance manufacturing from China to Louisville, Ky., in early 2012. Sometimes, the innovation is a cost reducer—a more economical means of producing a part—and other times, it's a means of differentiating the product from the competition.

But moving manufacturing closer to design and engineering centers can also benefit a company's top line sales revenue. By easing the process of collaborative design and engineering, it greases the wheels of innovation, putting designers and engineers on a better path toward developing product differentiators that will enable the product to stand out and perform well in the marketplace. And producing near the consumer helps this process by making it easier to incorporate design feedback from users of the product.

Reshoring is also good for business because surveys are showing that 'Made in America' is important to U.S. consumers. A survey of U.S. consumers commissioned by the Alliance for American Manufacturing (AAM) in June 2012 found that 78 percent of respondents viewed products that were made in America "very favorably," up from 58 percent who had the same view in 2010. Similarly, a Perception Research Services International survey from July 2012 found that 76 percent of consumers were more likely to buy an American made product, and 57 percent said that they were less likely to buy a product made in China. Marketing strategists are eager to capitalize, knowing that promoting a company's reshoring accomplishments enhances the company's image and good will among the growing number of consumers who prefer to 'buy American.'

Investments and Acquisitions

As reshoring has gained visibility in recent years, a good number of private equity firms—including Norwest Equity Partners, Generation Growth Capital, Genstar Capital, and Industrial Growth Partners, to name a few—have turned their attention to lower-to middle-market American manufacturing companies. We asked Harry Moser, president and founder of the Reshoring Initiative, what was up.

"It isn't just private equity; it's all kinds of investment companies," he replied. "I've had mutual fund people call me and ask, 'Which industries are going to benefit most from reshoring?' One of the biggest banks in the U.S. brought me out to a meeting with CEOs, CFOs, and financial analysts to discuss with them who's going to benefit from reshoring, and then took me around to mutual funds to have one-on-one discussions with them on the subject. Some people are planning a conference, just for financial types, on what they should be doing about reshoring.

"Why are they doing it? Because that's where they think the money is, and they see an opportunity. You know, a company may have been destroyed or almost destroyed by offshoring, and there's a good chance that they still have good people, and they still have good products, and they still know what they're doing. Well, that's an opportunity."

It sure is. And it shows just how people are viewing the future growth of American manufacturing.