Land Ho! Onshoring: Repatriating Our Manufacturing
Onshoring is the opposite of off-shoring: it is the repatriation of America jobs and companies to America. There are several economic reasons for American-owned companies to either return production to the USA (or to decide to stay). Together, these economic reasons add up to a political reason. On-shoring is an act of productive, creative and responsible citizenship; the active participation in the material aspect of public life.
First of all, you can’t participate in your polity if you can’t survive. In this sense, onshoring can provide the margin between barely surviving and succeeding for small and medium sized business. How can that be? Isn’t Chinese labor cheaper? Yes, it is still cheaper than American labor. However, according to The Huffington Post, between 2006 and 2010, the average Chinese minimum wage increased 12.5% per year and the Chinese government wants to see an average of 13% annual growth in wages from 2010 to 2015. Add to this transportation costs and American labor is suddenly much more competitive.
Labor costs are not the only consideration. One needs to take into account the price of traveling to China, dealing with Chinese subcontractors, poor Chinese quality control and the hidden costs of graft and corruption, the direct cost of which was estimated at $200 billion last year according to The Daily Beast. Even if you can provide that factory with training or if it is conscientious about quality and safeguarding intellectual property, their subcontractors may not be. A January 2010 survey by Grant Thornton found that 7% of their respondents felt that shifting operations overseas harmed their business and another 44% had not benefited from offshoring. The result is that, according to a survey by the Boston Consulting Group, by April of 2012 some 37% of manufacturing companies with sales of more than $1 billion (and 48% of companies with sales of more than $10 billion) are planning or actively.
Big companies can best afford the costs associated with off-shored production and larger companies may be able to ignore unhappy customers (and some do) but no small or medium sized business can, especially when dealing with customers who themselves may have tight budgets. The simple fact is that you can more easily resolve problems with your suppliers when they live a few hours or even a few minutes away, and share your culture, your language and your legal code, than when you are dealing someone who lives half the world away who doesn’t.
Still the decision to offshore or repatriate an existing manufacturing process to America can be taken lightly. However, while all the ramifications of onshoring vs. offshoring, including tax advantages, must be examined closely, on-shoring may very well be a viable option for your business. There is also a larger issue, one that some of the larger corporations seem to have forgotten. If people don’t work and aren’t paid a living wage, they can’t buy much more than bread. Robotic labor, once known as “automation,” can never buy things, either. Henry Ford understood this – if you don’t pay your workers enough to afford your product, you limit the size of your market. For a small or medium sized enterprise to on-shore may not only make micro-economic sense, it also makes macro-economic sense by increasing American employment and keeping American manufacturing and the research and development entwined with it at home.