As manufacturing legislation changes, firms may be able to gain new advantages. Companies can implement new manufacturing technology to stay competitive in new markets.
Although the trend was once to outsource manufacturing to low-cost countries, such as China, the U.S. is re-establishing itself as a competitive production country, according to a report from The Boston Consulting Group. U.S. exports have reached their highest level in 50 years as production returns from other countries. Compared to other developed economies, export manufacturing in the U.S. is on pace to be significantly less expensive than production in Germany, Japan, France, Italy and the United Kingdom by 2015.
The resurgence of American manufacturing is expected to create between 2.5 million and 5 million jobs by 2020. This could significantly improve the economy and the unemployment rate. In addition to American companies bringing production back to the U.S., many foreign firms are moving operations to be closer to their target markets to reduce shipping costs.
Reasons manufacturing activity is returning
China used to be seen as an attractive production destination because it was more cost-effective. However, labor costs have risen steeply in the last few years, and firms have problems with quality control and the long lead time between production and when goods are sold. The abundance of natural gas in the U.S has made manufacturing operating costs more affordable, and products can be transported more quickly. Manufacturers were willing to cope with the delays when they were achieving significant cost savings, but as China's advantages have faded, firms have been moving back to the U.S. to use the shorter lead time, according to CNBC.
Industries that are expected to see the most significant gains in cost competitiveness are transportation equipment, chemicals, machinery and electronics, BCG said. These product categories account for the bulk of global trade.
While the trend of production returning is becoming more significant, some larger firms may choose to establish a mix rather than moving all operations back. This will mean companies need to reassess their supply networks, and they may need to invest in new technology to manage different production schedules. Manufacturing management software can help firms stay competitive as production returns to the U.S. If a significant amount of production moves back to the U.S., it could give manufacturers new advantages.