Have you heard? U.S. manufacturing is back
A study last month by the Boston Consulting Group quantified what I’ve been suggesting for the last several years: When the total cost of manufacturing is calculated, the U.S. is as attractive a place for manufacturing as anywhere in the world.
Which begs a simple question: Why isn’t that the biggest news story of the year?
For almost a decade, we’ve heard about how low wages and an indifference to manufacturing have sucked jobs out of the U.S.—to Mexico, to Asia, to anywhere that U.S. manufacturers could dump jobs in exchange for lower wages. And a certain part of this is true—many short-sighted companies chased the low wages, figuring that if you can make it there for one-tenth of the labor costs, profits would follow. And manufacturers, like all other businesses, were chasing profits in the middle of the last decade.
The global recession changed the game, not just for the developed countries, but also for those emerging markets that were ramping up massive infrastructure improvement projects to become a global economic power. Those countries saw their growth slowed by the recession, and those infrastructure improvements slowed as well.
And then back in the U.S., a change began to take place. Manufacturing got leaner, and Leaner. We got smarter about our resource utilization. We stopped wasting energy and began to manage every aspect of our plants more closely. We made the tough choices in rebalancing our manufacturing operations around the country to take advantage of wage differences. The explosion of manufacturing in the Southeast, especially for the auto industry, is the best-known example, but certainly not the only one.
While that was going on, the global middle class began to emerge. Wages in China have tripled in the past decade, and while on a dollar-for-dollar basis they are still nowhere near the U.S. levels, that wage advantage has gone away. As energy prices continued to spike, that spike was felt everywhere, and the cost of returning goods from the point of manufacturing to the point of use continued to rise, further cutting into the cost of manufacturing.
We saw this taking place, yet the common perception still was—and is—that the U.S. is leaking manufacturing jobs. The reality is that the world is balancing itself. The mad rush to chase wages is slowing, and actually reversing itself. Outdated ideas such as, oh, quality and safety and attention to detail are starting to matter, to both manufacturers and consumers unwilling to waste any more time or money.
The Boston Consulting Group report notes that the jobs coming back are not the commodity-based products for which quality and price are not crucial. Transportation goods, electrical equipment/appliances, furniture, plastics and rubber products, machinery, fabricated metal products, and computers/electronics. “Together, these seven industry groups could add $100 billion in output to the U.S. economy and lower the U.S. non-oil trade deficit by 20% to 35%,” the report stated.
The report also noted that some of the jobs may be headed to Mexico, which has a wage advantage over the U.S. But “America’s experience in these tipping-point sectors and its much larger pool of skilled workers, as well as logistical and security concerns, will make the U.S. a better option for many companies,” said report co-author Justin Rose.
We’ve seen the results of these changes with the inrush of manufacturing plants in the auto sector. The latest company headed this way is Audi, which is looking at the shuttered Saturn plant in Tennessee and other locations in the Mid-South for a new U.S. facility. Having visited the Audi mother ship last year in Germany, I can tell you that they have an exemplary idea of how to effectively manufacture an automobile. Marry that with the skills of the American auto worker, and you have the potential for another crowning manufacturing gem in the U.S.
For most of the last six years, I’ve argued that we need to do a better job of improving our own manufacturing processes. Many companies are following that advice, and the results are starting to show. The world is taking a fresh look at American manufacturing, and they like what they see.
It’s time to spread the word.