Why So Many Manufacturers are -or Should Be- Considering Reshoring Right Now
With the Chinese dragon economy losing some of its fire as it slows at a faster-than-expected rate, some manufacturers are getting burned with labour disputes, unexpected shutdowns and massive layoffs as the declining manufacturing sector seriously disrupts their supply chains.
The introduction of annual minimum wage increases – upping salaries 50% since 2011 – and the broad impact of rising Chinese labour rates is being felt in many industries, particularly electronics. Renewed emphasis on the enforcement of manufacturing regulations is also factoring into a climate that is less ‘business friendly’ than it once was, with the end result being an increasing number of manufacturers pulling up stakes and moving to other rapidly developing economies within Asia – or even reinvesting in North America.
- Nokia recently laid off 9,000 employees and shuttered factories in Beijing, Dongguan and Suzhou – where it has operated since 1998 – citing the need to maintain cost controls, and refocus on research and development. Some of its manufacturing is transferring to Vietnam.
- Foxconn – one of China’s largest exporters and manufacturer of iconic brands such as Apple’s iPhone – has announced a $5 billion investment in India to build 12 factories. Foxconn’s Chinese operations have been chronically plagued with labour shortages and unrest.
- Samsung is accelerating its pace of withdrawal from China, and shifting production facilities to Vietnam, with a new $2 billion plant opening in 2015, the construction of another $3 billion plant announced, and $12 billion in investments pledged Samsung cites lower wages and favourable tax incentives as prime motivators for the move.
One of today’s greatest secrets is the fact that it’s just as cheap – if not cheaper – to manufacturer goods in North America, without the drama and turmoil. North American manufacturing offers a reliable, skilled workforce, highly regulated to the benefit of everyone involved, with a history of ethical treatment of employees, and competitive pricing when factoring in the total cost of production, sans customs, tariffs, duties, shipping time, and communication barriers.
It’s something Panasonic clearly realized: Panasonic recently closed its Beijing-based lithium-ion battery factory – which had operated since 2000 – cutting 1,300 jobs, and citing the need to refocus on higher-margin products such as electric car batteries. Panasonic has committed to a multi-billion dollar investment in Tesla’s Gigafactory in Nevada.
The time is overdue for manufacturers to reassess the sometimes decades old ‘wisdom’ that North America can’t compete with China. The Chinese advantage is shrinking fast, and the default option that China is always cheaper should be treated with scepticism.
Companies must now assess their total supply network and recognize that for the majority products sold in the North American market, reshoring to North America is not only the more attractive manufacturing option, but the smarter and safer one. Consider this your call to arms: Start looking West – and North – for better regulated, more efficient and more cost-effective manufacturing solutions.