PREPPING FOR ONSHORING
For those considering onshoring, careful site selection is critical. Incentives from various sources including state and local governments may help offset some of the initial relocation cost that could hurt the ROI calculation. Some states and localities are getting aggressive in their offerings to attract manufacturers and the good paying jobs they bring with them.
In some cases, states have established free trade zones to increase their attractiveness to lure internationally-focused businesses. Longer term, to help ensure that the cost/benefit analysis of onshoring will stand the test of time, it will be important that the labor-cost assumptions of onshoring locations are well thought out. An adequate pool of skilled and flexible labor will be critical at start-up and the presence of training infrastructure is key to satisfy future labor requirements.
Unfortunately, there are also a variety of negative variables that need to be considered when looking at onshoring (mostly regulatory driven), and may very well prevent the current trickle of onshoring from becoming a steady flow. These include:
- Corporate tax rates in the U.S.: Recent comments from the administration have focused more on the vague concept of “economic patriotism” than addressing the need for the U.S. to make its corporate tax rates more competitive.
- Electricity costs: Regulations on coal-based electricity production will certainly have a tangible effect on the cost of electricity in the U.S. (+17% by 2020 has been suggested), which will be far more important to most companies than the trend in natural gas prices.
- Organized labor: Recent decisions by various elements of the federal government including the National Labor Relations Board and OSHA, such as the 2013 ruling that now allows union officials to “ride along” with OSHA even when visiting non-unionized facilities, are bothersome and hint at even more concerning future actions.
The benefits of bringing manufacturing facilities back to the U.S. are clear, but there are also challenges. Companies should conduct all necessary research and due diligence in advance to understand the long-term commitment and investment needed, as well as how long it will take to generate a return.