Tuesday, 31 January 2012

Made-in-America seen making a return in 5 years

The notion of America winning back jobs from China in a big way seems as likely as In-n-Out opening a store in Hong Kong. Oh, wait.

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Guanyu 道 said...

Made-in-America seen making a return in 5 years

By RAY KWONG
20 January 2012

The notion of America winning back jobs from China in a big way seems as likely as In-n-Out opening a store in Hong Kong. Oh, wait.

That said, China’s overwhelming manufacturing cost advantage over the US is shrinking fast.

Within five years, a Boston Consulting Group analysis concludes, rising Chinese wages, higher US productivity, a weaker dollar, and other factors will virtually close the cost gap between US and China for many goods consumed in North America.

‘The United States is poised to bring back jobs from China,’ said Harold Sirkin, co-author of a recently published study titled ‘Made in America, Again: Why Manufacturing Will Return to the US’.

The BCG report makes the case that manufacturing in some parts of the US will be just as economical as manufacturing in China with some compelling rationale.

First, China’s labour- cost advantage over low-cost states in the US will fall significantly from 55 per cent today to 39 per cent in 2015 as wages and benefits continue to increase in China at 15-20 per cent per year.

Second, the cost of savings of manufacturing in China will become minimal within the next five years when factoring in transportation, duties and industrial real estate.

Third, automation and other measures to improve productivity in China won’t be enough to preserve the country’s cost advantage. They will actually undercut the primary attraction of outsourcing to China - access to low-cost labour.

And last, given rising income levels in China, demand for goods will increase rapidly. This will probably incentivise multinational companies to devote more of their capacity in China to serving the domestic market, and shift some production work for the North American market back to the US.

This does not mean that China will decline as a major manufacturing power. The nation will remain the world’s fastest-growing consumer market.

Regardless, the economic forces that are fast eroding China’s cost advantage as an export platform for the North American market need to be in sync with America’s own economic forces.

In the past decade alone, output from American factories, adjusted for inflation, has risen by a third.

Yet, this success has come at a cost. US factories have replaced millions of workers with machines, according to Adam Davidson of The Atlantic.

The BCG report notes that the reallocation of global manufacturing is in its very early phases. It will vary dramatically from industry to industry, depending on labour content, transportation costs, China’s competitive strengths, and the strategic needs of individual companies.

The bottom line is that in order to make the most of factory work coming back to America, US workers will have to readjust, learn new skills and be willing to take on types of jobs that they haven’t done in nearly a generation. How they make that transition will be interesting to watch. -- EJ Insight

The writer, who writes on China for Forbes, is a China business development strategist and marketing consultant