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More Reasons to Reshore

June 3, 2013

Recent headlines have provided stark reminders that cheap manufactured goods from overseas often come at the expense of human lives.

On April 24, an eight-story building in Savar, Bangladesh, collapsed, killing 1,127 people and injuring hundreds more. The building housed five factories producing garments for Western retailers. Five months before the Savar tragedy, a fire at another Bangladeshi garment factory killed 112 people, and just two weeks after the Savar incident, a fire at yet another Bangladeshi garment factory killed eight more.

Hopefully, these tragedies will lead to safer working conditions and better governance in the country, which has become the second-largest garment exporter in the world after China. Twenty-four large apparel companies, including H&M and Benetton, recently signed a legally binding agreement to help pay for fire safety and building improvements in Bangladesh’s notoriously decrepit factories. We shall see if any progress is made.

Meanwhile, here in the United States, the decision about where to source parts and assemblies just got a little easier. In a sign that the nation’s manufacturers are becoming more globally competitive, the United States is now equal to Mexico in “attractiveness” as a source for nearshoring operations and is on track to achieve cost parity with manufactured imports from China by 2015.

In a recent study conducted by AlixPartners, a global business advisory firm, 37 percent of manufacturing executives said they would choose the United States as their preferred location for nearshoring. Two years earlier, that percentage was 19 percent. Similarly, another 37 percent of executives said they would pick Mexico as their preferred nearshoring location. Two years earlier, that percentage was 63 percent. In short, when OEMs want to keep manufacturing close to home, they’re just as likely to choose a domestic factory as they are a Mexican one.

“The U.S. is definitely a more cost-competitive source for manufacturing today than it has been in many, many years,” says Steve Maurer, managing director at AlixPartners and leader of the firm’s manufacturing practice in the Americas.

That’s good news, indeed, and it gets better. AlixPartners also found that the cost gap with China has, on average, been closed by approximately 70 percent for numerous manufactured products. Rising production costs, more even exchange rates, and increasing freight costs are making China a more expensive product source than it was a decade ago. If current trends remain in place, by 2015, the cost of importing manufactured goods from China will be about the same as making them in the United States.

 If the landed cost of offshoring is close to that of nearshoring or insourcing, we see little value in continuing to source parts from dangerous and deplorable overseas sweatshops. Bring the work back home. A rising tide floats all boats. 

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