For at least twenty years, if you were looking at hiring engineering design services or electronics manufacturing, the conventional wisdom was to go overseas. It was a purely bottom-line decision, and from that point of view, it did make a lot of sense:
Overseas labor in developing markets was vastly less expensive.
Costs-of-living were also far lower, leading to cheaper infrastructure costs.
Fuel and transportation costs were relatively low.
A strong US Dollar leveraged the cost savings further.
Local governments often bent over backwards to encourage western investment.
Well, notice the past tense in the previous statements. With the possible exception of the last point, none of these ideas are really accurate today.
Overseas Engineering Design Services Losing Their Appeal
The influx of manufacturing has had the predictable effect on local economies overseas: workers are demanding higher wages, and more disposable income has led to cost-of-living increases as well. Fuel and transportation costs, of course, have become far higher in recent years. Plus, the dollar isn't doing as well as it used to, especially with the Yuan continuing to grow in strength.
Furthermore, having your engineering design services and assembly done overseas has
introduced significant new problems to the mix. These have further eroded whatever financial benefits remain for locating your manufacturing services overseas:
A public backlash against working conditions in offshore factories, spurred by Foxconn's ongoing problems.
A perception -with some grounding in reality- of cheap foreign products having inferior quality.
Increased post-sale support costs on less-reliable products.
Long manufacturing and shipping pipelines that cannot respond quickly to spikes in demand.
Costly oversight processes which require frequent overseas trips, or else putting trust
in local overseers who may not warrant it.
A significant disconnection between your product development / R&D facilities and your manufacturing processes.
Finally, there's the undeniable impact on the US economy. This spread of jobs overseas has contributed to local US economic woes, resulting in a situation where one of the largest consumer bases in the world is now significantly underperforming due to cash flow problems.
Add all these up, and it quickly starts to look like offshoring may not be viable for much longer. However, there's a new trend which seeks to address all these issues at once, in the
most obvious way possible: bringing manufacturing jobs back to America
Reshoring: The Alternative For Engineering Design Services
Companies engaging in reshoring are discovering that the initial cost benefits of offshore contracting are ultimately offset by all of the "hidden" costs that go beyond a simple price-based cost/benefit analysis.
It's true that US-based manufacturing and engineering is still more expensive than overseas work, going strictly on a per-unit basis. Companies experimenting with reshoring are reporting a five to ten percent decrease in profit margins, but they are making up the difference by considering the long-term TCO of overseas operations.
Further, being "Made in America" remains a significant selling point, both at home and abroad. Foreign markets still see "Made in America" as an indicator of quality, making it an easy "brand" for any domestic manufacturer to leverage.
In today's economic climate, reshoring begins to make a lot of sense. It made enough sense to Google that they've moved the production of much of their Nexus Android smart device line to California. These same products have been performing far better than anyone expected, making it likely to pay off for Google.
Is It Time...?
Is it time for you to consider moving your manufacturing design services back to the US? We believe so. Besides the substantial long-term cost savings for bringing your work back to America, the benefits to the local economy in the form of direct stimulation are substantial.
It makes sense from a business perspective, and it makes sense for the economy as a whole.
What's your take? Is it too soon to declare the Age of Offshoring at an end?