Surprise! U.S. Manufacturing is Growing, But Not From Reshoring | Global Trade Magazine
99 New Articles
  April 25th, 2016 | Written by

Surprise! U.S. Manufacturing is Growing, But Not From Reshoring

Global manufacturing and supply chains are undergoing seismic shifts, many of which the conventional wisdom did not see coming, indicates Wharton study.

Sharelines

  • Most of the new investments in U.S. manufacturing came from European and Asian enterprises.
  • Drivers for non-U.S. companies to come to North America for manufacturing are market access and innovation.
  • Companies now shifting production to China are also seeking market access.

A study undertaken by professors at the University of Pennsylvania’s Wharton School of Finance drew some surprising conclusions about investments by global companies in the United States manufacturing sector.

A survey of 75 widely-dispersed global companies found that most of the new investments in U.S. manufacturing did not come from U.S.-based companies—so-called reshoring—but from European and Asian enterprises.

“The drivers that are driving companies—particularly non-U.S. companies—to come to North America for manufacturing are market access and access to innovation, not for low labor costs, said Morris Cohen, a Wharton professor, in a podcast on the subject of the study.

The migration of manufacturing used to be “perceived as a one-way flow,” Cohen noted. “But now we see two-way streets. We see movement in both directions.”

The Wharton study proceeded in two phases. An earlier benchmarking study did not find much activity shifting to North America. But the more recent study “saw a significant amount of shifting production,” said Cohen, “not back, but into the U.S.”

And it was surprising where that shift was coming from. Europe-based and Asia-based companies were responsible for the shifting production into the U.S. “American companies, not so much,” said Cohen.

Interestingly the motivations of companies now shifting production to China are similar to those shifting to the U.S. “Not for low labor costs,” said Cohen, “but for access to its huge and growing market.”

Market access as key motivator may also explain why U.S.-based companies are not shifting more production back home. They “already have that access to the market,” said Cohen, “and therefore the incremental benefit to them is not as great.”

“It used to be [costs] dictating their decisions,” added John Cui, another Wharton professor involved in the study. “But these days, we observe much more complexity in their decision-making, and in terms of the outcomes that we observed.”

That observation, in turn, signals that we “are in the midst of a major restructuring of global supply chains,” according to Cohen. “In region after region, company after company, companies are asking the questions: Do we have the right structure? Do we have the right sourcing locations? Are we bringing our product to market in the most effective way? And they’re oftentimes shifting capacity, changing the way in which they produce products.”

Some things never change, however. The biggest flow in global manufacturing remains into China. But even there, some companies are shifting production to lower-cost venues like Vietnam and Bangladesh for the sake of lower costs.


Videos

Sponsored Content

%d bloggers like this: