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Source: Forbes

Manufacturing is a tough, competitive business. Shipping across oceans has become cheap, as has international communication, so offshoring, reshoring or never changing are vital decisions. The outlook for manufacturing activity in the United States depends on many factors, including the overall state of the economy. In this article, though, I focus on the offshoring/reshoring issue: where will manufacturing activity take place in the coming years?

Many generalizations are made, such as “American manufacturing is dead” or “manufacturing is coming back to the United States.” Unfortunately, the world is too complicated for simple conclusions. Some industries are, in fact, dead in this country. Other industries, though, are returning production to the U.S. Others never left and are doing just fine, thank you very much.

To look into the future, let’s first review where we’ve been, and  then figure out the challenges to local production and the challenges to offshore production. At that point we can forecast which sectors will expand in the United States and which will use overseas locations.

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Source: BCG Perspectives 

For the better part of three decades, a rough, bifurcated conception of the world has driven corporate manufacturing investment and sourcing decisions. Latin America, Eastern Europe, and most of Asia have been viewed as low-cost regions. The U.S., Western Europe, and Japan have been viewed as having high costs.

But this worldview now appears to be out of date. Years of steady change in wages, productivity, energy costs, currency values, and other factors are quietly but dramatically redrawing the map of global manufacturing cost competitiveness. The new map increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies, and many that fall in between, spanning all regions.

In some cases, the shifts in relative costs are startling. Who would have thought a decade ago that Brazil would now be one of the highest-­cost countries for manufacturing—or that Mexico could be cheaper than China? While London remains one of the priciest places in the world to live and visit, the UK has become the lowest-cost manufacturer in Western Europe. Costs in Russia and much of Eastern Europe have risen to near parity with the U.S. 

Read full report here

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Everything is bigger in Texas, and thanks to Mexico, that may be also soon be true of the state’s growing tech sector. Flush with cash, Texas’ proximity to Mexico gives the state’s tech companies distinct advantages over other regions, according to entrepreneurs and others involved in the state’s tech industry.

Mexico is Texas’ number one trading partner, a fact leaders from both regions often proudly tout in speeches. Historically much of this trade has revolved around maquiladoras, which in the 1990s were geared largely toward textile manufacturing, or auto parts. With Texas’ rising tech scene, startups are looking south to meet their manufacturing needs, or otherwise benefiting from the close proximity to Mexico.

“They say that San Antonio is the northernmost city in Mexico,” says Lorenzo Gomez, director of San Antonio startup incubator Geekdom. “We in Texas get the benefit when immigrants come into our country — it’s an injection, an infusion of entrepreneurs that most other places don’t get.”

Read more here 

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Posted by on in News

Source: New York Times

September 23, 2013

A study by the Boston Consulting Group documents what many manufacturers have quietly discovered in recent years — bringing production back to the United States from overseas carries some advantages.

More than half of executives at manufacturing companies with sales of more than $1 billion plan to return some production to the United States from China or are considering it, according to the report. That’s up from 37 percent in February 2012.

And the number of respondents in the process of moving back also rose, with 21 percent engaged in returning work to the United States, or “reshoring,” compared with 10 percent in 2012.

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Source: McKinsey & Company

After years of large-scale outsourcing and offshoring, a number of onshoring initiatives in both the manufacturing and service industries have left many executives wondering if a major trend reversal is occurring.

The answer, according to our analysis, is simply that many leading companies now have a broader set of options when they source. To do that optimally, they define bundles of activities that should be sourced consistently and select the best option for each bundle: offshoring, nearshoring (locations in neighboring countries), farmshoring (lower-cost locations in the company’s home country), or onshoring. Today, sourcing strategy focuses increasingly on value-creating factors that go beyond labor costs, which was the primary driver of sourcing in the past.

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Posted by on in Analysis

Source: UNCTAD

Uneven growth of FDI in Latin America and the Caribbean FDI flows to Latin America and the Caribbean reached $292 billion in 2013. Excluding offshore financial centres, they increased by 5 per cent to $182 billion. Whereas in previous years FDI was driven largely by South America, in 2013 flows to this subregion declined by 6 per cent to $133 billion, after three consecutive years of strong growth. Among the main recipient countries, Brazil saw a slight decline by 2 per cent, despite an 86 per cent increase in flows to the primary sector. FDI in Chile and Argentina declined by 29 per cent and 25 per cent to $20 billion and $9 billion, respectively, due to lower inflows in the mining sector. Flows to Peru also decreased, by 17 per cent to $10 billion. In contrast, FDI flows to Colombia increased by 8 per cent to $17 billion, largely due to cross-border M&As in the electricity and banking industries. 

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Source: The Economist

IN 2005, A START-UP company from California called ET Water Systems decided to move its manufacturing operations to China. At the time there was a general exodus to Asia in search of lower costs, recalls Mark Coopersmith, the firm’s chief executive. ET Water Systems, which builds sophisticated irrigation devices for businesses, quickly started losing money, not least because it had so much capital tied up in big shipments of goods which took weeks to cross the oceans. Innovation suffered from the distance between manufacturing and design, and quality became a problem too.

When five years later Mr Coopersmith investigated the difference between the total cost of production in China and America, including the cost of shipping, customs duties and other fees, he was amazed to find that California was only about 10% more expensive than China. And that was just on the immediate numbers, without allowing for the intangible benefits of making the devices almost next door. ET Water Systems’ new manufacturing partner, General Electronics Assembly, is in San Jose. As it happens, the firm’s owner has a Chinese background and a large portion of its employees are of South-East Asian origin.

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Source: BCG.persepctives

These days, there are many reasons to be bullish about the future of U.S. manufacturing. As cost competitiveness in the U.S. continues to improve compared with, for example, China, Japan, and Western Europe, a growing number of companies big and small are considering repatriating the production of everything from machinery to electronics to U.S. shores. Some companies have already begun the shift. Others are planning to use the U.S. as a manufacturing platform from which to export to the rest of the world. The Boston Consulting Group has estimated that these trends could help create 2.5 million to 5 million U.S. jobs by the end of the decade. (See “Behind the American Export Surge,” BCG Focus, August 2013.)

But even if economic factors are swinging in favor of the U.S., skepticism abounds over whether the manufacturing sector will really be able to absorb so much work. One concern is that the U.S. may no longer have enough skilled workers. Years of outsourcing and offshoring have so damaged U.S. manufacturing, the argument goes, that its once-abundant pool of welders, engineers, and machine operators have shifted to other occupations. And the U.S. education system is failing to train enough new skilled workers to replace those who retire. 

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Source: BCG.perspectives

Export manufacturing has recently become the unsung hero of the U.S. economy. Despite all the public focus on the U.S. trade deficit, little attention has been paid to the fact that the country’s exports have been growing more than seven times faster than GDP since 2005. As a share of the U.S. economy, in fact, exports are at their highest point in 50 years.

But this is likely to be just the beginning. We project that the U.S., as a result of its increasing competitiveness in manufacturing, will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade. About two-thirds of these export gains could come from production shifts to the U.S. from leading European nations and Japan. By 2020, higher U.S. exports, combined with production work that will likely be “reshored” from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.  

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Source: Boston consulting Group

New BCG Cost-Competitiveness Index Finds Mexico Is Less Expensive Than China, the UK Is the Low-Cost Manufacturer of Western Europe, and Many Emerging Markets Known for Low Costs Are No Longer Cheaper Than the U.S.

CHICAGO, April 25, 2014—Manufacturing cost competitiveness around the world has changed dramatically over the past decade—so dramatically that many old perceptions of low-cost and high-cost nations no longer hold, according to new research released today by The Boston Consulting Group (BCG). In manufacturing, Brazil is now one of the highest-cost countries, for example, and the UK is the cheapest location in western Europe. Mexico now has lower manufacturing costs than China, while costs in much of eastern Europe are basically at parity with the U.S. These are among the findings of the new analysis, which is part of BCG’s ongoing research into the shifting economics of global manufacturing. Cost competitiveness is becoming increasingly important as organizations around the world rethink their manufacturing networks and as governments recognize the economic importance of a stable manufacturing base.

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Source: Alix Partners

The United States has surpassed Mexico as the preferred location for nearshoring of previously offshored manufacturing slated for US consumption, according to AlixPartners’ 2014 Reshoring/Nearshoring Executive Survey and Outlook.(After Mexico, respondents ranked Canada, South America, Central America, and the Caribbean—in that order.) This year, 42% of respondents said they would choose the United States as their preferred location. That is up from 37% in last year’s survey. The percentage who said they would choose Mexico (among various countries and regions in the Americas) dropped to 28% this year, down from 37% last year and from 49% the previous year. That decrease in Mexico’s attractiveness may stem in part from perceived security and safety issues in that country, though more than half of our respondents said they expect such issues to improve in the next five years. At the same time, the United States has grown more competitive as a location of choice for near-shoring, fueled in part by recent shale-gas breakthroughs. Nevertheless, some of the advantages offered by nearshoring in the United States may be short-lived. Companies serving the US market still face complex challenges in making manufacturing-sourcing decisions. To get the most from nearshoring, manufacturers should closely examine their own unique circumstances and adapt their sourcing strategies to those circumstances. Click here to read the survey.

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