Why U.S. manufacturing is making a comeback and what it means for the economy, job growth and businesses.
Harold Sirkin, Managing Director and Senior Partner, The Boston Consulting Group
U.S. manufacturing once seemed in irreversible decline as companies moved their production operations overseas to places like China. Times are changing.
Harold (Hal) Sirkin, managing director and senior partner at The Boston Consulting Group and co-author of “The U.S. Manufacturing Renaissance: How Shifting Global Economics are Creating an American Comeback,” has spent years researching U.S. manufacturing trends. Regions recently spoke with Sirkin about his positive outlook for domestic manufacturing and what it means for the U.S. economy, workers and businesses.
Q: Why are some companies now bringing their manufacturing back to the U.S.?
Sirkin: It comes down to economics. U.S. companies can no longer reap the financial rewards of manufacturing in China that they could 10 or 15 years ago. China’s average manufacturing wage rose from 58 cents an hour in 2001 to about $6 an hour today. Of course, that is still substantially lower than the roughly $25 an hour or so average U.S. manufacturing wage. But U.S. workers’ productivity is about 3 to 3.2 times higher than it is in China. Once you consider that, the labor cost differences have narrowed greatly. Beyond that, you have to factor in other direct and indirect costs of manufacturing in China, including transportation and shipping expenses, being far away from your supplier, the potential for intellectual property theft and navigating the Chinese market and government controls.
Q: Can you quantify this trend? How big of an effect is manufacturing’s comeback having on U.S. jobs and the economy?
Sirkin: It’s too early to know exactly what the economic effects will be, because accurate statistics aren’t available. But we can identify more than 200 companies, both large and small, that have moved their manufacturing to the U.S. in recent years. These include Ford Motor and Coleman, the camping gear company. We’ve even seen European companies like Siemens and Rolls-Royce decide to start making their products in the U.S. because they realize it’s cheaper. We also expect that the energy sector will largely benefit from this growth. U.S. manufacturers will use the low-cost energy produced in the U.S., and domestic energy suppliers will benefit from that increased demand. We have projected that the U.S. manufacturing renaissance will lead to the creation of 5 million new jobs in both manufacturing and energy by 2020.
Q: How will U.S. manufacturing growth specifically affect economies in Southern and Midwestern states?
Sirkin: It could be particularly good for them, as we’ve already seen many companies choosing to establish their manufacturing operations in those states. Companies often favor working in the South, for example, because the labor conditions tend to be better there, thanks to a more flexible workforce and a lower cost of living. Industries like transportation goods, computers and electronics, fabricated metals, appliances and furniture already have a strong manufacturing presence in the South.
Q: Beyond the economic factors of domestic manufacturing, many companies like the ability to tout that their products are “Made in the U.S.A.” Do consumers actually care about that message?
Sirkin: I think there’s been a change in consumers’ thinking because of the recession and the concern over job creation. We’ve also seen in our survey work that consumers believe U.S.-made goods are better quality than those made in low-cost countries. Tests in stores have shown that if prices and deemed quality are identical between a U.S.-made and foreign-made product, people will generally buy the U.S. one. They will even pay a premium of 5 percent to 10 percent for U.S.-made goods for certain types of health and baby products.
Q: How many of the manufacturing jobs pulled out of China actually return to the U.S.?
Sirkin: Our models show that only about 20 percent to 25 percent of the products that are “reshored” — or have their manufacturing moved from China to somewhere else — will move to the U.S. The majority will move to other countries with low-cost manufacturing, such as Mexico and Indonesia.
Q: There’s been much written about the automation of U.S. manufacturing and how robotics will someday replace workers. What effect will this have?
Sirkin: Robotics have been used for a long time, but the economics are getting much better. The price for programmable logic controllers, which are at the heart of robotics, is about 85 percent less than it was 15 years ago. That’s good for U.S. manufacturers because it allows them to lower their labor costs through robotics at a time when most countries’ labor costs are rising. Particularly in the U.S., Europe and Japan, where labor costs are high, automation can help make manufacturing sectors more competitive.
