Shasta Co. EDC on “In-Shoring”

In-Shoring Part 1

Mark Lascelles - Wednesday, May 30, 2012


Recently, I attended an International Asset Management Council (IAMC) conference in Austin Texas. One interesting discussion was a presentation on ‘in-shoring’, the name given to jobs returning to the States from overseas. In this blog I will share some comments regarding International manufacturing trends.

  1. In 1979 the US made up 22% of the worlds manufacturing economy, today it is 19%. Not much change.
  2. The US manufacturing labor force is one sixth of the Chinese; however they produce 150% of Chinese output, so our labor productivity is strong.
  3. The US has tripled manufacturing output from 1979 to 2010 ($545B to $1.7T) and increased manufacturing productivity every year since 1990, but jobs have declined. This is due to innovation replacing jobs which will not return.
  4. Chinese labor costs are rising 17% to 18% a year and when you add currency exchange changes this boosts the cost increases to 20% to 25% per year.
  5. This is already having the effect of driving some manufacturing to new markets, Vietnam (the new China), and some ‘near-shoring’ to Mexico and Central America.
  6. The logistics of manufacturing site locations have changed. Previously it was cost effective to manufacture near the raw materials source and ship the final product to the market. Hence the steel mills of the North East supported the auto industry located in the same area. They then shipped out manufactured products to final markets.

Today shipping cost and greater distances to markets have created the reverse where it is more cost effective to ship raw materials and manufacture nearer the markets. Hence manufacturing is being located near growing markets, China, India and Brazil. We are seeing an increase of raw materials being exported to these regions.

  1. Most new manufacturing in India and China are for local markets.
  2. One school of thought is that we will not see labor intensive manufacturing return as the cost factor is too strong to overcome.However larger automation type manufacturing is becoming more competitive in the US and other developed economies. A good example CAT has moved from Japan to Georgia based on cost!