Reshoring Jobs From China. Possible or Pipedream?

Tuesday, January 31, 2012 9:09

Watching last week’s SOTU, and thinking generally about the jobs situation in the U.S., it is hard not to be entranced by the President’s call for reshoring jobs. And it is not hard to know where he is looking to steal those jobs from. China

Some, like Josh Noble at FT, believe that Obama’s call for reshoring is a bit of a pipe dream. That, like Steve Jobs said, “Those jobs ain’t coming back“, and offers 5 reasons for saying as much:

1). Skills. Many of the middle and senior managers in China’s factories have been working in production their whole lives.
2). Scale. Wages in some Chinese factories have already reached levels comparable to eastern Europe – in EU member states like Romania and Bulgaria. But none of those countries has the sheer weight of numbers required to build factories employing hundreds, thousands, or even tens of thousands, that southern China can offer.
3). Infrastructure. China’s ports, freight railways and airports – especially in the south – are as good as anywhere in the world.
4). Supply chains. After 30 years of manufacturing, most businesses have well established chain of supporting manufacturers. […] replicating those entire chains elsewhere in the world seems like an unlikely prospect.
5). Future customers.As the Chinese consumer spends more, Chinese factories will be much closer the their target audience.

All of which I would agree have, in one form or another, led to the movement of jobs from the U.S. to China and would each present barriers to those jobs returning to the U.S.

However, as I am finding out through a bit of research about the U.S.’s effort to attract firms, there is hope for reshoring some jobs. As I have said in the past. However, the jobs themselves (and the sources of those jobs) will likely be different. Here’s why.

Beyond the 5 characteristics of China’s market that are attracting firms, it is also important to also recognize the fact that China has worked very hard to get to where it is at. Sure, there are skills, cheap labor, strong infrastructure, and future customers. But that is also due to the fact that there was a PLAN. A mission (a the highest levels) for create economic growth, jobs, and prosperity, for the Chinese people themselves.. which catalyzed China’s leadership to take actions that resulted in the above.

Beyond the 5 year plans, and talking in the backrooms of Mahjong parlors, there has been a lot of action that supported this mission. Creation of economic zones that catered to all manners of business (by model, geography, and industry), development of very attractive incentive schemes that were designed to attract certain types of money and build scale in certain fields/ industry, and planning that laid out a path where core & satellite cities came up together in a manner that supported each other (several cities sourced raw materials, one city focused on assembly, and others served as logistics hubs).

Which ultimately led to what was perhaps the greatest consolidation of supply chains in the history of retail manufacturing. EVER.

But, as we began seeing in 2007/8, supply chains can move. They can move to the interior parts of China.  They can move to Vietnam.  They can move back to the United States.

Particularly when inflation of raw materials, labor, and energy increase to a point where outsourcing to a third party no longer makes sense. Or the failures of economy, society, and environmental create a dynamic that essentially reverses previous policies and force government officials to remove incentives (and perhaps create dis-incentives).. or, that the failures of process and quality will themselves prove too costly to ignore.

Each opportunities for change. Each opportunities for reshoring (even if on a limited basis).

So, while there are certainly barriers when it comes to manufactured cost, and access to the Chinese market, that are going to help keep firms in China.

But, that is not to say that there are not firms who are looking for an opportunity to exit the China supply base.  That, through a plan, and the development of the right mix of economic incentives, firms may begin to move production back to areas that have been gutted over the last 15 years… tax breaks, access to government contracts, cheap buildings to move back into, and shout outs from the President of the United States … could each have a level of attraction for different firms of different size and product, and that movement could lead towards more investment, much as it did in China.

It’s not to say that Apple would return any of their 700,000 jobs, but then again, I am not sure those jobs would be in high demand given all the recent press surrounding the labor conditions in the typical Foxconn assembly shop

More on this topic in due time..

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3 Responses to “Reshoring Jobs From China. Possible or Pipedream?”

  1. Steve Hall says:

    February 1st, 2012 at 5:13 am

    I think US industry, prompted by the government, needs to be led to rethink it’s global sourcing strategies. My colleague wrote this piece on the idea (http://bit.ly/whUBEf) basically arguing that companies will continue to pursue ‘best-value sourcing’ policies that have for many years led them out of the US. That balance needs to change if the US wants the large-scale return of manufacturing jobs. 

  2. Rich says:

    February 1st, 2012 at 9:07 am

    Steve.

    I won’t disagree with you. I worked on a number of large sourcing projects, some which led to production in China. However, as my clients (all my clients) always came to understand.. there is a difference between best PRODUCTION value and the best quality value, and in the case of one client, the price difference was not enough.

    In my upcoming post, I am going to address some of the underlying economics for why China has succeeded as well as it has in attracting investment in the manufacturing industry, and then hopefully draw some realistic conclusions for how the US can compete,

    R

  3. US Companies Going Back to the U.S.? : China Business Leadership Blog says:

    February 4th, 2012 at 5:49 am

    […] All Roads Leads to China had an article on Obama’s call to reshore jobs.   In it they note some reasons from Josh Noble in The Financial Times that those jobs will not go back to the U.S. […]