In a paragraph, here’s why we will see a lot more reshoring

Mark J. Perry calls attention to a company that makes bracelets and charms for colleges and sororities – Manufacturing Boom in Michigan, Partly Due to Reshoring; U.S. Factories are Competitive Again

The company brought its manufacturing back from China.

The reason they did so as described by Prof. Perry, is the same reason there will be a lot more companies that do so:

China’s cost advantages are shrinking due to rapidly rising costs there for wages, inputs, and commercial real estate, along with higher oil prices that have increased shipping costs.  Then you add in quality issues (Collegiate Bead was rejecting up to 30% of the Chinese-made products), delivery delays, time and language differences, poor safeguards for intellectual property rights and American manufacturers are finding that China is not such a great deal any more, and manufacturing goods for the U.S. market at home now makes more sense than in a generation.

Let’s walk through that again–

  • “China’s cost advantages are shrinking “ – Primary reason cited for several decades to offshore is saving money – that reason is evaporating.
  • “rising costs there for wages, inputs, and commercial real estate, “ – the entire range of production costs is going up fast.
  • “higher oil prices that have increased shipping costs.“ – Rising oil costs? Has a big impact on moving stuff across the ocean.
  • “quality issues “ – Throwing away one-third of the stuff you paid to have shipped across the ocean really cuts into that cost advantage.  One-third?
  • “delivery delays, “ –  Takes weeks to get things from there to here, and that’s after you changed the production line. Makes it hard to respond to shifting consumer demands.
  • “time“ – Anything you do has a 8 hour or so time difference.
  • “language differences, “ –  Everything you do has to cross the language hurdle with the transactional friction that can create.
  • “poor safeguards for intellectual property rights “ –Good chance of losing the intellectual property you created and find out later your competitors know everything you do.

Roll all those things together and it is increasingly hard to justify manufacturing overseas. Methinks we’re going to see a whole lot more re-shoring in the future.

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