A resurgence for
Numerous factors point to a renaissance for U.S. manufacturing
Due to a variety of changing dynamics worldwide, manufacturing in the U.S. appears ready for a renaissance. In fact, “The rate of reshoring and incremental foreign direct investment (FDI) has grown from 6,000 jobs/year in 2010 to 160,000 in 2020”, according to Harry Moser, Founder and President of the Reshoring Initiative®.
That is good news for the U.S., as manufacturing has the highest multiplier effect of any sector in the U.S. economy and brings along many other benefits as well. It is estimated that every $1 in manufacturing adds nearly $3 to the economy and that for every 1 new manufacturing job, 5 jobs are created elsewhere up and down stream.(1)
What is driving this resurgence in “Made in America”? Here are five underlying factors to consider:
- Risk mitigation – Companies are rethinking their global manufacturing and/or sourcing strategies. Global complexities create more time in transit and greater risk for supply chains. Meanwhile, threats and the fallout from natural disasters like fires, floods and earthquakes have left more and more companies thinking twice about the supposed advantages of producing products half-way around the world.
- Self-reliance – The federal government and its citizens do not want to be reliant on other countries for needed supplies, medical equipment, drugs, or protective equipment when the next pandemic or disaster strikes…and it will. As much as 50% of pharmaceutical active ingredients critical to our healthcare are produced in China.(2) Semiconductors are critical to the manufacturing of computers, mobile phones, automobiles and robotics, to name a small list. Today, approximately 45% of all computer chips are manufactured in Taiwan or China.(3)
- Military defense – Sophisticated military ships, vehicles, aircraft and other weaponry are highly reliant on semiconductors, as well as rare earth minerals being mined and processed mostly outside the United States. The highly advanced F-35 Lightning, an all-weather, stealth, combat aircraft contains 920 pounds of rare-earth materials. A Virginia-class submarine requires 9,200 pounds of the same.(4) Today, approximately 90% of rare earth materials are mined and/or processed outside of the U.S.(5)
- Consumer sentiment – Consumers all over the world love buying American made products. “Made in the U.S.A.” has brand power and there is a renewed emphasis on U.S. sourcing and manufacturing by such companies as Walmart. The company recently pledged to invest $350 billion over the next 10 years in products made, grown or assembled domestically. “U.S. manufacturing really matters,” said John Furner, CEO of Walmart U.S. in March 2021.
- Sustainability – Sourcing products closer to consumption can have a significant impact on sustainability initiatives as well as reduce transit times when speed to customer matters. Transportation related emissions -- from trucks, cars, planes and ships -- account for approximately 33% of global greenhouse-gas emissions.(6) Also, the actual manufacturing process can be more polluting offshore. For example, electricity production in China is much more dependent on coal, which is extremely detrimental to the environment. Improvements to a company’s supply chain network can have a big impact on its sustainability goals. The trend now is to have more facilities closer to the customer.
Companies that got caught up in the “offshoring” craze of the 80’s and 90’s, which gave rise to manufacturing in developing countries, especially China, are now evaluating shifting some, or all of, those sourcing operations back to the U.S. The rising cost of Chinese labor has had a negative influence on the offshoring value proposition, with average manufacturing wages in China rising nearly 61% between 2014 and 2019.(7)
Transportation is an increasingly important factor. The higher the cost of transportation, the more significant the freight “penalty” becomes to ship over greater distances. Freight costs are increasingly offsetting, even eclipsing, savings from cheaper labor. As transportation costs continue to rise, sustainability goals gain in importance, and speed-to-market becomes the competitive differentiator, companies will be incentivized to produce and source products as close to the final consumer as possible. The longer distances required to move product creates additional complexity as well as risk.
The demand for manufacturing-related facilities has soared 93% year-over-year
In a recent demand study on industrial real estate – manufacturing plants, distribution centers, warehouses – our Research Team indicated the demand for manufacturing-related facilities soared 93% year-over-year in 2021.(8) Companies are finding that by making sourcing decisions based on “Total Cost of Ownership”, instead of just piece price, a significant percentage of what is now imported can be reshored profitably. Working in partnership with the Reshoring Initiative®, we can provide useful tools for making this analysis.
The fundamentals are excellent for the growth of American manufacturing. A well-educated work force, strong (and improving) logistics infrastructure, low energy rates, growing economy, stable political environment, close proximity to the world’s largest consumer base and increasing governmental and corporate appreciation of the value and feasibility of U.S. self-sufficiency are necessary fundamentals.
When it comes to supply chain network strategy—in part, how many manufacturing and distribution facilities a company should have and where they should be located— companies must ultimately make decisions that pin their strategy to the ground. Having a globally optimized supply chain network is critical to operational success and achieving sustainable competitive advantage.
Our original 2011 paper, “Made in America,” stated that U.S. manufacturing made good business sense. The 25x increase in the rate of reshoring and foreign direct investment since that time further validates our statement. Here we are 10 years later in 2021. We confidently project a further strengthening of U.S. manufacturing over the next 10 years.
(1) National Association of Manufacturers and Manufacturing Alliance for Productivity and Innovation.
(2) https://glginsights.com/articles/chinas-role-in-global-generic-pharmaceutical-supply-chain/ and https://www.uscc.gov/sites/default/files/Priest%20US-China%20Commission%20Statement.pdf
(3) WSJ https://www.wsj.com/articles/why-fewer-chips-say-made-in-the-u-s-a-11604411810.
(4) U.S. Department of Defense report
(6) Union of Concerned Scientists
(7) TradingEconomics.com and the National Bureau of Statistics China.
(8) JLL Industrial Demand Study, May 2021