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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- Augus 21, 2013 -

Supply Chain News: Growing US Manufacturing Competitiveness to Lead to Export Surge, Job Growth


New Report from Boston Consulting Group Says US to have Major Advantages for Next Decade; Reshoring will Accelerate Around 2015


SCDigest Editorial Staff

There has been much talk over the past two to three years over a potential renaissance in US manufacturing, with substantial anecdotal evidence at least that some US manufacturers are moving production back to US soil or deciding to stay here rather than moving offshore.

Analysts at Boston Consulting Group have been in the forefront of these predictions, estimating in 2011 that the US would largely reach parity in terms of effective manufacturing costs with the Eastern regions of China by 2015 - an observation a number of other consultants and analysts have also made.

SCDigest Says:


The dramatic rise in US imports from Asia in the past decade have led to very low pricing for shipping containers back out of the US, or in much higher costs from Asia to Europe versus the US to Europe.

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Now, BCG is back with a prediction that increasing US competiveness with China and advantages over most other developed economies is likely to lead to an export surge and a growing number of badly needed American jobs.

This trend is already in place, BCG notes.

"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," a new BCG report notes. "As a share of the U.S. economy, in fact, exports are at their highest point in 50 years."

BCG says that the US is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. So much so that BCG estimates that by 2015, average manufacturing costs in the five major advanced export economies that the firm studied - Germany, Japan, France, Italy, and the UK - will be 8 to 18% higher than those in the US.

That advantage will come from lower labor costs, when productivity is factored in, and lower energy prices in the US versus much of the rest of the world.

"We project that the US, 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," BCG says. "About two-thirds of these export gains could come from production shifts to the US from leading European nations and Japan."

And that export surge will have a major impact on job creation. BCG says that by 2020, higher US 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.

While certainly regional manufacturing strategies will still be common even as the US advantage grows, companies "must be aware that the structural changes in production cost structures represent a potential paradigm shift for global manufacturing that warrants immediate attention," the BCG report says.

Is the Pendulum Really Swinging Back?

As noted above, there has certainly been a fair amount of anecdotal evidence that some US companies have been moving production back to the US or deciding not to move offshore (NCR, Whirlpool, Caterpillar, Ford, GE and others).

(Manufacturing Article Continued Below)



There has also been news that companies in energy intensive industries such as chemicals, fertilizers, metals and others have been making similar moves as a result of US natural gas prices that are half or even one-third the cost of nat gas in Asia or Europe.

BCG also cites some less well-known developments, such as Honda making investments and adding shifts at its plants in Indiana and Ohio to increase exports, with the company expecting to double its exports of US-made vehicles in the next few years. Siemens announced it will build gas turbines in North Carolina that will be used to construct a large power plant in Saudi Arabia

The chart below offers BCG's estimate of total manufacturing costs between the US and several European countries and China (US equals baseline of 100 score) in 2015.



Source: Boston Consulting Group

BCG cites US labor market flexibility as a key component of this rising advantage. Costs to close a factory in Germany, for example, are many times higher in Germany than the US.

These cost estimates do not include costs related to inventory and transportation, which if also factored in would increase the US advantage certainly for North American markets and even some in other parts of the world. For example, the dramatic rise in US imports from Asia in the past decade have led to very low pricing for shipping containers back out of the US, or in much higher costs from Asia to Europe versus the US to Europe.

For example, BCG says it recently cost an average of $3,900 per 40-foot equivalent unit (FEU) to ship goods from Yokohama, Japan to the major Euro port of Rotterdam. The comparable shipping rate from New York City was just $1,400.

Importantly, BCG also says that the these kinds of US manufacturing announcements will begin to accelerate around 2015, as the economic case for reshoring to the U.S. grows stronger.

What Manufacturers Need to Consider

BCG expects this US manufacturing advantage to last at least 5-10 years - a significant period of time in terms of supply chain strategies.

"The new math of manufacturing requires that many companies reassess their global production strategy," BCG says.

The firm adds that maintaining a diversified global manufacturing asset portfolio is still recommended to provide supply chain flexibility.

That said, "The shifting manufacturing cost dynamics, however, suggest that more companies should consider the US as a manufacturing option for global markets," BCG concludes. " A number of leading manufacturers based in Europe and Asia have already begun to use the U.S. as a major export platform or have announced plans to do so."

Will the US really see this type of manufacturing surge? Do you believe these relative cost estimates are accurate?
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