Reshoring Is Slowing Down, but Moves into the U.S. by Non-U.S. Companies Are Growing

As 2016 dawns, the economy still seems to be headed in the right direction overall, and manufacturing wages seem to be destined to rise.

But there also are reasons for disquiet among industrial CEOs, including indications that the “reshoring” phenomenon has lost quite a bit of steam. It will take some good macroeconomic news and determined actions by American manufacturing chiefs to ensure that the re-domestication of manufacturing becomes more robust over time.

“There is still value for companies to reassess or consider reshoring as they continue to look at how business conditions evolve,” Pramod Gupta, an A.T. Kearney partner and co-author of its U.S. Reshoring Index, told Manufacturing CEO Briefing. “Many companies are still choosing to be closer to the U.S. market.”

And perhaps surprisingly, some of the biggest moves in establishment of American manufacturing are being made by CEOs of non-U.S. companies.

New orders for durable goods in November were about flat, held back by declining exports, a plunge in oil-related investments and other factors that offset continuing increases in autos and defense. Some big manufacturers—such as Steelcase and Herman Miller in office furniture— have noticed a marked downturn in big-project business. And even the unseasonably warm weather in the eastern half of the country held back “industrial activity” because the measure counts utilities’ output.

Yet the biggest challenge to the renascent U.S. industrial sector may be the fact that, for the fourth consecutive year, reshoring of manufacturing operations to the United States in 2015 failed to keep up with continued offshoring of factory output. In fact, an index compiled by A.T. Kearney showed the largest year-over-year decrease in reshoring-vs.-offshoring in the last 10 years.

Among the reasons that reshoring has faced difficulty gaining more momentum, the consulting firm said, is that “industries vulnerable to rising labor costs in China have been successfully relocating to other Asian countries, [including Vietnam], rather than returning to the United States.”

Yet, more non-U.S. companies, including those based in China, “increasingly invest in establishing or expanding their manufacturing footprint in the United States. The insatiable U.S. consumer market, the stable political and economic environment, and the benefit of tapping into American engineering skills and manufacturing know-how are main draws.”

Gupta said that manufacturing CEOs increasingly choosing reshoring, despite the background trends, are those “that need to get to market most quickly, particularly in high-end, short-supply chain industries where it’s important to be able to respond to the market quickly.”

For example, he said, sporting footwear and apparel is one industry where manufacturers are more often reshoring, especially in segments where 3-D manufacturing in the U.S. can give them a competitive edge. “The U.S. is the most conducive place for that, with more resources here where they can leverage the newest manufacturing techniques,” Gupta said. “The product life cycle is very short.”

Reshoring may have become a more difficult case for manufacturing CEOs to prove these days. But in some industries it’s the best case. And as the U.S. economy reasserts its growth-leadership position globally, as it’s expected to do in 2016, the attributes for domestic manufacturing may grow.