From Offshoring to Reshoring

Summary

The discussion focuses on reshoring, the trend of companies bringing manufacturing and tech jobs back to their home countries after decades of offshoring. Morris explains how U.S. companies moved manufacturing operations to low-cost countries, mainly China, but rising labor costs and other factors have sparked a shift back. Scott highlights similar trends in technology, particularly with IT work returning from India. Both sectors are seeing a resurgence of domestic jobs, though not at the same volume as jobs lost. Companies now seek a balance of onshore, offshore, and nearshore operations.

Takeaways

• 🏭 Companies have offshored manufacturing, particularly to China, due to lower labor costs over the past decade.
• 📉 Manufacturing output has increased, but employment in the sector has declined, with the U.S. losing millions of jobs in recent years.
• ⚙️ Reshoring refers to the process of bringing manufacturing back to the home country, often the U.S., as companies reconsider their global strategies.
• 💼 There has been a recent shift in some companies, like General Electric and Apple, reshoring operations, though the job numbers gained may not fully recover the losses.
• 💻 Similar trends are occurring in the technology sector, with companies like GE and MetLife establishing domestic technology centers.
• 📈 Labor costs in China have risen significantly, narrowing the gap between U.S. and Chinese wages, which is a factor in reshoring decisions.
• 🏗️ Reshoring is more feasible in high-labor-content industries, like apparel, while in high-tech industries like aerospace, the situation is more complex.
• 📊 Some industries, particularly in tech, still rely on offshore, nearshore, and onshore options for accessing global talent, rather than focusing solely on reshoring.
• 🌍 Reshoring is a global trend, affecting countries like China and Japan as well, who experience this phenomenon as offshoring from their perspective.
• 🤖 Companies are now factoring in not just labor costs but productivity, time-to-market, and value-added factors in their reshoring or offshoring decisions.

Q & A

What is the concept of reshoring as explained by Morris?

Reshoring refers to the process of bringing manufacturing operations that were previously offshored back to the home country, such as the U.S. This is seen as a solution to reverse the trend of job losses due to offshoring.

How did offshoring impact U.S. manufacturing employment over the last 10 years?

Over the last 10 years, the U.S. manufacturing sector saw a loss of around 5 million jobs due to offshoring, primarily to countries like China and other Asian nations, despite the overall output in manufacturing continuing to increase.

What are some examples of companies reshoring their operations?

Examples of companies reshoring include General Electric, which invested a billion dollars to bring back appliance manufacturing to Kentucky, Apple assembling computers in the U.S., and Lenovo also shifting some computer assembly operations back to the U.S.

Why is there skepticism about the potential to fully recover lost jobs through reshoring?

There is skepticism about fully recovering lost jobs because while some jobs are returning, it is unlikely that the U.S. will recover the 5-6 million manufacturing jobs lost. Some estimates suggest that only a fraction, perhaps half a million or a million jobs, will come back.

What industries are most affected by reshoring, and why?

Industries with high labor content, such as apparel, are more likely to benefit from reshoring. However, in high-tech industries like aerospace and defense, the decision to offshore or reshore is more complex and driven by factors beyond labor costs, such as technological capability.

What trends are driving the reshoring movement in the technology sector?

In the technology sector, reshoring is driven by the rising demand for tech talent, with companies looking for options that include on-site talent, offshore, nearshore, and now onshore, in lower-cost but high-quality areas within the U.S. This is similar to trends in manufacturing.

How has the cost of labor in China affected reshoring decisions?

The labor costs in China have been rising faster than in the U.S., which has reduced the wage differential that initially made offshoring a no-brainer for many companies. As this gap narrows, some companies are reconsidering reshoring.

What role do non-labor costs play in reshoring decisions?

In addition to labor costs, factors such as supply chain management, government regulation, and currency exchange rates play important roles in reshoring decisions. These factors can influence whether companies find it more advantageous to produce domestically or continue offshoring.

Is reshoring likely to reverse the offshoring trend completely?

Reshoring is not likely to completely reverse the offshoring trend. While some jobs are returning, offshoring will continue in certain sectors due to global demand for labor and technology talent. Companies are increasingly looking for a balanced approach with both reshoring and offshoring.

What challenges do companies face in deciding between offshoring, nearshoring, and reshoring?

Companies face challenges such as balancing cost savings, access to skilled labor, productivity, and time-to-market needs when deciding between offshoring, nearshoring, and reshoring. Each decision is influenced by industry-specific factors and the company's overall strategy.