Reshoring

© 2014 4imprint, Inc. All rights reserved
Welcome home: Why companies are bringing
business back to the U.S.
There’s no place like home. That’s what companies like Apple®
, Ford®
, Whirlpool®
and others are discovering. The trend is a growing number of organizations
clicking their heels and bringing overseas operations back to the U.S. According
to Harold Sirkin, a senior partner from the Boston Consulting Group®
, in the
upcoming years 20 to 25 percent of products that were sent offshore will
eventually return to the United States.1
Even more telling, research shows that
more than half of executives at manufacturing companies with sales exceeding
$1 billion either plan to, or are thinking about, bringing overseas operations
back to the United States from China. Since 2012, there’s been roughly a 15
percent increase in companies that return to the U.S.2
It’s a global trend—one
study found that in the past three years a surprising one in six companies
from the United Kingdom returned home.3
The practice is called “reshoring,”
and more and more corporations are putting out welcome mats for foreign
operations to return home.
Manufacturing.Net®
went so far as to call 2013 “the year of reshoring.”4
According to the global consulting firm A.T. Kearney®
, there are a number of
macroeconomic factors that tip the balance in favor of domestic manufacturing.
Some of the reasons cited for the shift include labor rate inflation and lower
energy costs in the United States.5
A few years ago, the Obama Administration
launched a “Make it in America” campaign designed to make manufacturing in
the U.S. more appealing. The idea is to shift manufacturing back home to create
jobs and increase the competitiveness of the United States on the international
stage. And since more than 500,000 U.S.-based manufacturing jobs have been
added since 2010, one could say the strategy is working.6
What is the root cause of this movement? For one, it’s not as cheap as it used to
be to go global. Overseas costs for labor, distribution and manufacturing are on
the rise and many companies find that it’s not as economically beneficial as it once
was to do business abroad. In China, for example, wage and benefit increases are
1 Northam, Jackie. “As Overseas Costs Rise, More U.S. Companies Are ‘Reshoring’” NPR. NPR, 27 Jan. 2014.
Web. 16 Apr. 2014. http://www.npr.org/blogs/parallels/2014/01/22/265080779/as-overseas-costs-rise-more-u-s-
companies-are-reshoring.
2 Schwartz, Nelson. “More Manufacturing Coming Back to the U.S.” The New York Times, 23 Sept. 2013. Web.
16 Apr. 2014. http://economix.blogs.nytimes.com/2013/09/23/more-manufacturing-coming-back-to-the-u-s/?_
php=true_type=blogs_r=0.
3 “Why Are UK Firms Bringing Manufacturing Back Home?” The Telegraph. Telegraph Media Group, 01 Dec.
2003. Web. 16 Apr. 2014. http://www.telegraph.co.uk/finance/jobs/10671738/Why-are-UK-firms-bringing-
manufacturing-back-home.html.
4 Hans, Joel. “Top 13 In 2013; A Year Of Re-shoring.” Manufacturing . Net. N.p., 19 Dec. 2013. Web. 20 Apr. 2014.
5 Ibid.
6 Ibid.

15 to 20 percent annually, on average.7
While companies used to enjoy a labor
cost advantage of about 55 percent, by 2015 economists believe this number will
decline to just 29 percent.8
Global sourcing has also declined because hidden costs are taking a toll on
profitably, possibly because companies didn’t do their homework in advance. In a
Forbes®
article, Steve Denning called global outsourcing “the most short-sighted
business decision in history.”9
Estimates show that 60 percent of companies that
embraced offshore manufacturing didn’t conduct a full cost savings analysis,
instead they focused only on reduced labor rates.10
Now companies are learning
that other costs outweigh labor savings and are returning to home base.
This Blue Paper®
examines the reshoring phenomena, starting with an
explanation of why global sourcing is being reevaluated at some organizations.
It will also summarize some of the benefits you might realize if you pull business
back home. Finally, it will help companies decide whether or not reshoring is the
right move for the organization and identify key questions to explore. While
a welcome home party might be in your future, before you make a move it’s
important to look at the bigger picture and weigh the risks as well as rewards.
Reshoring—why the shift?
To be clear, global outsourcing is not dead. In fact, global outsourcing will
continue; some Asian countries are even expected to see a surge in demand.
A 2012 study by research firm Oxford Economics and co-sponsored by Towers
Watson Co. projects that during the next five to 10 years demand for industrial
talent will rise 37.7 percent and demand for business services workers will grow
40 percent in developing Asian countries.11
Additionally, some companies will
maintain global outsourcing as they expand domestic operations. Caterpillar®
, for
example, opened a new factory in Texas, but at the same time announced it will
expand research and development activities in China.12
7 Frauenheim, Ed. “Bringing the Jobs Back Home: How ‘Re-shoring’ Is Coming to America.” Bringing the Jobs
Back Home: How ‘Re-shoring’ Is Coming to America. N.p., 7 Feb. 2013. Web. 16 Apr. 2014. http://www.
workforce.com/articles/bringing-the-jobs-back-home-how-re-shoring-is-coming-to-america.
8 Frauenheim, Ed. “Bringing the Jobs Back Home: How ‘Reshoring’ Is Coming to America.” Bringing the Jobs
9 Denning, Steve. “Why Apple And GE Are Bringing Back Manufacturing.” Forbes. Forbes Magazine, 07 Dec.
2012. Web. 16 Apr. 2014. http://www.forbes.com/sites/stevedenning/2012/12/07/why-apple-and-ge-are-
bringing-manufacturing-back/.
12 “Coming Home.” The Economist. The Economist Newspaper, 19 Jan. 2013. Web. 16 Apr. 2014. http://www.
economist.com/news/special-report/21569570-growing-number-american-companies-are-moving-their-
manufacturing-back-united.

That said, the challenges encountered over the past few years suggest global
outsourcing isn’t always what it’s cracked up to be, forcing companies to exercise
greater caution.13
As noted, energy and labor are two costs that have increased
in the past few years. As the global economy took a downturn, natural resources
became more expensive abroad, thus reducing cost savings. Oil prices, for
example, are now three times what they were in 2000 and it is often cheaper
in the U.S. Likewise, natural gas is actually 75 percent cheaper in the U.S. than
China.14
In many cases, companies find that domestic energy costs are lower
than those abroad.
As previously mentioned, labor costs have also increased abroad, particularly in
China. Chinese labor costs are five times what they were in 2000 and are expected
to continue rising.15
Although reduced labor costs made outsourcing attractive in
early years, today, low-cost labor is not as prevalent due to greater attention to
global labor laws and an emphasis on fair wages.
Still, there are other reasons why companies are reshoring. Companies are
discovering that the virtual workplace has its weaknesses and that global
collaboration has limits. At some organizations, the cultural challenges of
outsourcing were overwhelming and required the constant presence of managers
to keep operations on task. Managers, in turn, were forced to increase the
amount of travel required to make the partnership work, and that had a greater
impact on finances and resources than anticipated.
What else changed? Over the years, recalls and product safety questions led
many consumers to crave the “Made in the U.S.A.” label, and that impacted
some decisions to reshore. As the desire to purchase American-made products
increased, companies decided to increase domestic presence, which also had the
added advantage of being closer to their customer base. Some companies find
that being closer to the customer enables greater product customization as well
as supply chain improvements.
Finally, some manufacturers have ethical motives for reshoring, such as reducing
carbon footprints, creating domestic jobs, and reducing concerns over foreign
labor conditions. In the United States, new legislation and incentives are making
it even easier to return and an added bonus is that it can reflect positively on
your organization.
13 “Reshoring’s a Reality: Manufacturing’s Coming Back.” Design News. N.p., 4 Feb. 2014. Web. 16 Apr. 2014.
http://www.designnews.com/author.asp?doc_id=271389.
15 Ibid.

Reshoring success stories
If you’re looking for a reshoring success story, look no further than General
Electric®
. So far, the company has invested $800 million to bring back operations
to the U.S.16
Specifically, GE®
returned Chinese manufacturing operations for its
hybrid water heaters to its Kentucky-based factory, despite earlier beliefs that it
would be more expensive. But after doing the math and factoring in rising wages
and transportation costs, the company decided to bring production back
to the U.S.
To do this, GE repurposed one of its existing factories to accommodate a water
heater assembly line. At the same time, the company developed new, lower
wage structures for employees and relied on input from experts to reduce
waste and time to market. Overall, the effort resulted in lower transportation,
material and labor costs, plus significant quality improvements. Before
reshoring, product delivery time took a minimum of four weeks by boat
from China and one week to clear customs. Now, the total time from factory
to warehouse is just 30 minutes.17
Even energy efficiency improved, and in
the final analysis, whereas the China-made product retailed at $1,599, the
Kentucky-made product retailed for just $1,299. If you do the math, that adds
up to an impressive 20 percent cost reduction.18
GE is not the only company reducing overseas operations. Last year, Apple®
CEO
Tim Cook announced it will resume domestic manufacturing across multiple
locations and will spend $100 million to bring back existing Mac®
lines to
the United States.19
In 2013, Walmart®
announced it will increase sourcing of
American-made products by $50 billion over a 10-year period by purchasing goods
already made in the U.S. and helping vendors bring back overseas production.20
One of Walmart’s largest bicycle suppliers, Kent International®
, moved operations
to South Carolina and anticipates it will assemble half a million bikes annually by
2016, creating 175 domestic jobs along the way.
In another example, HCL Technologies®
announced this year that it will increase
the U.S. workforce closer to its Sunnyvale, California headquarters. The company
reported that a sense of responsibility to U.S. communities impacted the decision.
Prithvi Shergill, HCL’s chief human resources officer said: “We are committed to
16 Ibid.
18 Ibid.
19 Ibid.
20 Huetteman, Emmarie, and Elizabeth A. Harris. “Walmart Fund to Support U.S. Manufacturing.” The New York
Times. The New York Times, 23 Jan. 2014. Web. 21 Apr. 2014. http://www.nytimes.com/2014/01/24/business/
walmart-creates-10-million-fund-to-stimulate-american-manufacturing.html?_r=1.

expanding local talent pools in the communities where we operate to ensure
we staff the right skills, in the right place, at the right time, for the right cost.”21
Shergill also reiterated that the plan was part of a socially responsible business
model that is more sustainable long term.
Both big and small companies are reshoring with success. National Cash Register®
(NCR®
) moved back to Georgia, while the smaller company Farouk Systems®
moved 1,500 jobs back from China to the U.S.22
Overall, reshoring examples are
abundant and telling—companies are not only coming home, but are finding
success on their journey.
Should you put out the welcome mat?
Reshoring benefits
A number of factors make reshoring an attractive option. According to the
consulting firm A.T. Kearney, some of the benefits of reshoring may include:
• improved delivery time,
• reduced freight costs,
• increased customer responsiveness,
• lower wage costs,
• improved quality controls,
• reduced risks to intellectual property,
• improved productivity,
• enhanced innovation, and
• better inventory controls.23
Some of these potential benefits are simply a reflection of proximity and math.
It’s a not rocket science; moving operations close to home can obviously reduce
delivery times. Accordingly, 34 percent of companies that reshore cite improved
delivery time as a major benefit as well.24
Plus, when operations are closer
there’s an obvious reduction in freight and delivery costs because products don’t
need to travel as far. Likewise, customer responsiveness might improve when
manufacturing isn’t separated by oceans. Moreover, as already mentioned, there
may be an opportunity to reduce labor costs by moving home, since labor prices
abroad continue to rise.
22 “A New Chinese Export - Jobs.” Time, 12 Apr. 2012. Web. 25 Apr. 2014. http://business.time.com/2012/04/12/a-
new-chinese-export-jobs/.

But what about the other benefits if you reshore? Some claim that by reshoring,
companies are able to institute higher quality control standards and reduce
intellectual property risks. Bringing operations home also enables companies to
manage the supply chain. Tighter, leaner supply chains are not easily obtained
when manufacturing plans are thousands of miles away.
Reshoring is also good for domestic economies. Not only does it bring jobs back to
the U.S., but it can stimulate state and local budgets. It can lead to growth in the
manufacturing workforce, promoting both academic and recruiting opportunities.
Ready to click your heels and head home? How to
determine if reshoring is the right move.
If your company is considering reshoring you have to do more than simply follow
the yellow brick road. It’s usually not a simple yes or no response—there’s a lot
of evaluation that needs to happen before you make a decision. To determine if
reshoring is the right choice, companies must engage in some critical activities,
including a comprehensive cost and benefit analysis, a review of customer
satisfaction and retention, and an innovation assessment to evaluate the impact
of global sourcing on innovation.
The first step is to conduct a full cost analysis. Companies should examine the
costs associated with labor, raw materials, shipping, natural resources, energy
use, or any other costs incurred with outsourcing. It’s important to evaluate the
full landscape of offshoring costs, especially since surveys from Accenture®
and
Archstone Consulting®
claim that 60 percent of companies fail to recognize 20 to
30 percent of outsourcing costs.25
At a minimum, companies should examine:
• transportation costs,
• direct shipping prices,
• overall labor costs,
• travel costs,
• tax incentives.
Once you’ve uncovered the total costs associated with sourcing, you’ll need to
evaluate it against costs in the U.S. Will a number of costs be lower? If some costs
are higher domestically, consider whether or not lower costs in other areas will
eventually outweigh global costs over time. For example, if labor costs are still
lower in the sourcing country, identify whether or not the costs savings associated
with transportation will outweigh lower wages abroad long term.
25 The Reshoring Initiative: Welcome. N.p., n.d. Web. 22 Apr. 2014. http://www.reshorenow.org/news/
successStories.cfm.

To further analyze domestic versus global costs you might conduct a cost/benefit
analysis. If you need help, visit the Reshoring Initiative, which is an industry-led
effort with the goal of bringing manufacturing jobs back to the United States.
The initiative works with U.S. manufacturers to help them recognize the potential
profits that come with reshoring. One of the resources provided by the effort is
the Total Cost of Ownership Estimator™
, which is a free tool that can aggregate all
associated cost and risk factors for easier and objective decision making. Basically,
total cost of ownership (TCO) refers to the measure of direct and indirect costs
of a product or system. TCO components look at a wide range of metrics, such as
freight and packaging, inventory carrying costs, missed customer deliveries due
to shipment delays, and travel costs to visit and manage the supplier. After data is
inputted, you receive a report highlighting:
• calculations of each source’s cost;
• an accumulation of all costs into cost categories;
• charts showing each source’s current price, total cost of ownership and
five-year forecast
• line charts showing cumulative cost by category.
Next, estimate the TCO in the U.S. versus abroad. It will give you a comprehensive
picture of costs for both domestic and global operations and whether or not
you’ll obtain TCO costs savings. Don’t forget to take a look at recent legislation,
tax and other financial incentives that are now offered by state and local
governments—it’s important to include these in your analysis to consider the total
financial picture.
How much will it cost to physically relocate operations? Will you be able to recoup
those costs over time? How long will it take to realize a payback? It goes without
saying that relocation can be expensive. You might engage in scenario planning
to determine if the cost and capital required for reshoring have acceptable
returns, or if you can even afford relocation in the first place. Define “if/then”
scenarios that weigh the costs of relocation against domestic savings over time.
For example, you might come to the conclusion that if labor wages continue to
decrease in the U.S. and energy prices continue to rise abroad, then the costs
associated with moving are financially justified.
However, it’s important to remember to scrutinize all costs incurred through
global sourcing, not just the obvious ones. For instance, customer satisfaction and
retention should also be included in the decision making process. Are shipping
times and quality issues having a negative impact on customer satisfaction and
retention? If the answer is yes, then reshoring might be the right move. Another
issue to address is the “mass customization” trend, which refers to product

modifications that reflect customer preferences. At some organizations, product
customization requirements have increased, and it’s easier to make products
that reflect customer preferences when plants are closer to markets and research
and development units. As an additional benefit, manufacturing close to
customers allows companies to reduce lead times and keep up with ever-changing
market demands.
There are other key questions related to innovation that must be explored.
Specifically, companies should conduct an assessment on the impact of global
sourcing on innovation, because some research indicates that separating
manufacturing from engineering can have a negative impact on innovation.26
According to GE spokesman Sebastien Duchamp, greater opportunity for
innovation and collaboration was a primary driver for GE’s domestic relocation.
Duchamp recently noted that “Today, innovation has to be in the markets you
play in, close to your customers, and close to access the best talent wherever it
exists in the world.”27
Companies should also evaluate the impact that reshoring can have on
production. Is distance causing a company’s U.S.-based RD department to miss
chances to improve production methods that may reduce costs? Again, if the
answer is yes, reshoring might be beneficial. Companies should also evaluate
whether or not they are maximizing new and innovative manufacturing methods,
such as 3D printing. Thanks to 3D printing, some companies are able to replace
part of the manufacturing line to produce more savings.
Determining whether reshoring is the right move is probably more complicated
than most companies envision. Yet before you reshore, it’s important to consider
the big picture, including tangible and non-tangible costs, and weigh them
against the benefits.
Use caution on the yellow brick road
Of course, the reshoring debate is not without criticism. In the article, “Don’t
Drink the Kool-Aid” author Stephen Marshall cautions against reshoring
and asserts that despite good intentions, reshoring is not always feasible or
profitable.28
He notes that “unlike Dorothy’s ruby slippers in the Wizard of Oz,
26 The Reshoring Initiative: Welcome. N.p., n.d. Web. 22 Apr. 2014. http://www.reshorenow.org/news/
successStories.cfm.
27 Khan, Mubin S. “US Manufacturing and the Troubled Promise of Reshoring.” Theguardian.com. Guardian
News and Media, 24 July 2013. Web. 22 Apr. 2014. http://www.theguardian.com/business/2013/jul/24/us-
manufacturing-troubled-promise-reshoring.
28 Marshall, Stephen. “Reshoring - Don’t Drink the Kool-Aid!” World’s Largest Professional Network. N.p., 4 Apr.
2014. Web. 20 Apr. 2014. http://www.linkedin.com/today/post/article/20140404145158-96141041-reshoring-
don-t-drink-the-kool-aid.

clicking our heels together and chanting ‘there’s no place like home’ will not
bring manufacturing home to the USA.”29
Marshall and others believe that organizations should carefully evaluate the pros
and cons of reshoring before making a move. Since reshoring essentially means
moving operations from one country to another, capital expenses associated with
the move can be quite high. Plus, the costs to build or update a manufacturing
facility can be exorbitant and take years to recoup.
There’s also some debate as to whether or not global increases in labor costs truly
impact the bottom line. Despite labor increases across China, for example, there
is still a significant gap between average U.S. wages and Chinese wages. Critics
argue that even if Chinese labor costs continue to rise, companies will still find
lower rates in places like India, Bangladesh and Africa and choose to relocate to
one of these regions before coming home.30
Reshoring opponents also point out that reshoring simply to reduce energy and
labor costs is misguided. These types of costs are inherently cyclical and change
over time because they are influenced by the global economy. It’s a better idea to
ask how long manufacturing in the U.S. will be attractive, and whether or not it
justifies the effort to relocate.
In addition, critics point out that after decades of outsourcing, there’s an inter-
dependency across global markets that needs to be considered. It’s not so easy
to sever ties with foreign counterparts, especially if the company relied on
access to raw materials and foreign exports. Along these lines, companies might
experience a disruption in production, simply because operations can’t be moved
overnight, making it difficult to keep up with consumer demand.
The domestic skills gap might present another challenge to reshoring, according
to those that make the case against it. When companies move operations back
to the U.S. they might be surprised to discover that there’s no longer a strong
pool of talent to fill open positions. For years, many qualified and experienced
workers either left or were forced out of the industry, diminishing the availability
of domestic workers. Not to mention that moving back requires companies to hire
and train a new workforce, and that’s only if you assume you can find employees
with the skills you need. For this reason, some argue that labor costs will actually
increase in the long run.
29 Ibid.
30 Khan, Mubin S. “US Manufacturing and the Troubled Promise of Reshoring.” Theguardian.com. Guardian
News and Media, 24 July 2013. Web. 22 Apr. 2014. http://www.theguardian.com/business/2013/jul/24/us-
manufacturing-troubled-promise-reshoring.

4imprint serves more than 100,000 businesses with innovative promotional items throughout the United States,
Canada, United Kingdom and Ireland. Its product offerings include giveaways, business gifts, personalized gifts,
embroidered apparel, promotional pens, travel mugs, tote bags, water bottles, Post-it Notes, custom calendars,
and many other promotional items. For additional information, log on to www.4imprint.com.
Finally, those that caution against reshoring cite that despite legislation and
incentives aimed to bring manufacturing back, America’s government still is
not making it attractive enough for companies to return.31
In many cases, the
incentives and tax breaks available globally far exceed those available in the U.S.,
even with improved legislation.
Is a welcome home party in your future?
As reshoring gains momentum, many companies are tempted to jump on
the bandwagon. But before you make a move, it’s important to consider all
factors that impact the decision, and weigh the risks against the rewards.
Only then can you fully determine if it’s time to invest in some party hats
and throw a welcome home party.
31 “Coming Home.” The Economist. The Economist Newspaper, 19 Jan. 2013. Web. 16 Apr. 2014. http://www.
economist.com/news/special-report/21569570-growing-number-american-companies-are-moving-their-
manufacturing-back-united.

Reshoring

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Ähnlich wie Reshoring

Ähnlich wie Reshoring (20)

Mehr von 4imprint

Mehr von 4imprint (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Reshoring