Onshoring: the new Cost-Cutting Tool in Management’s Arsenal

CEOs pondering whether Donald Trump’s “Buy American” policy ideas will hurt their business should consider this: many companies were already bringing jobs back to the U.S. before the 45th president stepped into the Oval Office.

They’ve been inspired by a number of changes in the global economic landscape that could provide comfort to leaders fearful that mandated reshoring will trigger a blowout in manufacturing costs.

Since 2010, reshoring announcements by local companies and direct investment by foreign companies—including some from China—have brought over 300,000 jobs back to the U.S., the Reshoring Initiative said Wednesday. Those jobs represent over 30% of the 939,000 manufacturing positions added between February 2010 and March 2017, it estimated.

The nonprofit advocacy group was set up in 2010 by Harry Moser, the former CEO of machine tool maker GF AgieCharmilles.

Its figures were presented as wages in traditionally low-cost countries such as China continue to rise as their economies modernize. The business environment in China also has become more hostile to foreign entrants as local competitors, once hungry for foreign input, shed their training wheels and thrive in their own right.

At the same time, wage growth has flattened in the U.S., while advances in manufacturing technology and the boom in oil and gas production keep overheads down. Add shipping costs, other supply-chain costs and intellectual property risks to the equation and the idea of making things at home becomes a more attractive proposition, Moser said.

The biggest reshoring drive was started in 2013, when Walmart pledged to source $250 billion worth of products that create American jobs by 2023. The retail giant is holding its next “open call” for U.S. products on June 28.

“The Walmart commitment is making them the largest driver of reshoring,” said Moser, who is delighted at the prospect of helping suppliers help the retailer reach its goal.

To be sure, at 12.4 million, the number of manufacturing jobs in America, while rising, is still down significantly on levels above 17 million at the turn of the century. Alternative jobs, meanwhile, have been created in other sectors such as technology and healthcare.

Reshoring may not be for everyone, however. And the economic climate can change: some companies, like oil giant Saudi Aramco, see energy demand improving and prices rising in the coming years. While wage inflation in developing countries shows little signs of abating, U.S wage growth also lingers as a concern, should the economy overheat.

Walmart itself also is a member of the Affordable Products Group, which is lobbying against the introduction of a 20% border-adjustment tax, indicating that while it may want to source more products from America, it still wants—and in some cases needs—to source products from overseas, too.

The Reshoring Initiative has put together a free calculator, which can be found here, to help business leaders make up their minds.

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