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U.S. Manufacturing Comeback?
Don’t give up on American manufacturing yet. There are signs of new life that give rise to optimism about a U.S. manufacturing renaissance.
A new analysis by The Boston Consulting Group (BCG) estimates that within the next five years the wage gap between the United States and China, home to tens of thousands of former U.S. manufacturing jobs, will all but disappear as Chinese wages and the value of the yuan continue to rise.
“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” says Harold Sirkin, a BCG partner. “We expect net labor costs for manufacturing in China and the United States to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ over the next five years.”
Even now some firms are looking close to home for expansion. General Motors recently announced it would invest $2 billion to add up to 4,000 jobs at 17 American plants. The Los Angeles Times reports that chip maker Advanced Micro Devices Inc. will open a $4.6 billion semiconductor factory north of Albany, New York, next year, the first major chip plant built in the United States in a decade. And BCG notes that heavy equipment maker Caterpillar is moving jobs from abroad to Texas, and NCR has brought cash machine production to Georgia.
Interviewed by the Economist, HBS Professor Gary Pisano expressed cautious optimism. “Higher wages in China may cause some firms that were going to scale back in the U.S. to keep their options open by continuing to operate a plant in America,” he noted. But the damage done by offshoring high-tech manufacturing may be irreversible, he warned. Once factories relocate abroad, the infrastructure needed to support those jobs erodes and is difficult to reestablish.
Still, BCG’s Sirkin is sanguine about U.S. manufacturing. He advises executives considering a new factory in China to export goods to America to carefully consider total costs. “They’re increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother—and that’s before taking into account the added expense, time, and complexity of logistics,” says Sirkin.
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