From Offshoring to Reshoring – Trends in U.S. Manufacturing (Part II)
In our September issue, we examined the origins and results of offshoring U.S. manufacturing jobs. In this issue, we continue our two-part series “From Offshoring to Reshoring – Trends in U.S. Manufacturing,” with a closer look at the more recent trend of reshoring—what’s driving it, and what the future may hold for Georgia and the nation.
The Move to Reshoring in America
Difficulties began to emerge after years of offshoring. The labor price gap between manufacturing operations in the U.S. and those in foreign countries began to close, while the cost of labor in China has increased 320% since 2000—and it is predicted to continue to climb at roughly 18% per year. By comparison, the average cost to manufacture goods in the U.S. was only 5% higher in 2015. Rising global fuel prices raised shipping costs, making the reasons to offshore less pressing, especially in light of the relatively lower cost of oil and gas in the U.S. Longer supply chains, higher freight costs and other hidden costs of materials in China started to outweigh the savings in labor costs.
As a result, U.S. manufacturing is on the rebound, having added more than 730,000 jobs since the end of 2010. And, according to the Manufacturing Institute, industry analysts expect the sector to create at least another 700,000 jobs by the end of the decade. Some of these jobs are the direct result of the momentum of reshoring. For instance, the Reshoring Initiative shows these trends:
- Roughly 60% of the jobs being reshored to the U.S. are coming from China.
- Between 2010 and 2014, Walmart reshored 4,444 jobs, triggering a chain reaction among its suppliers.
While wages and shipping costs weigh heavy on the decision to reshore (or not), it’s useful to consider other factors that are driving U.S. companies to bring their operations back to U.S. soil. Topping the list are government incentives, the need to shorten the supply chain, and the desire to boost customer responsiveness by being physically closer to them.
It is interesting to note that skilled labor was also listed by the Reshoring Initiative as a reason because the very lack of skilled labor is an acknowledged concern in many U.S. industries. The Manufacturing Institute’s, “The Skills Gap in Manufacturing: 2015 and Beyond,” reports over the next decade nearly 3.5 million manufacturing jobs will likely need to be filled. With current trends in available skilled employees, it is expected that only 1.5 million of those jobs will be filled. Finding, training and hiring skilled labor appears to be one of the primary challenges for U.S. manufacturers for at least several years, which could make reshoring problematic for some.
According to the Reshoring Initiative, top reasons to reshore include:
- Lower cost gap
- Government incentives
- Logistics: shorter lead time / time to market
- Ecosystem synergies / localization
- Proximity to customers
- Image/brand (made in America)
While the reshoring trend is on the upswing, that doesn’t mean that offshoring has – or will – come to an end. When looking at the number of jobs coming back to the U.S., one must also consider the number of jobs that are still being lost to offshoring.
Despite being slightly off the predicted number, 2015 was the second straight year that jobs returning to the U.S. remained on par or slightly higher than the number of jobs leaving. The Reshoring Report acknowledges that the rapid loss of millions of manufacturing jobs has been stemmed, but states “…there are still huge challenges to bringing back the 3-4 million manufacturing jobs previously loss to offshoring.”
Reshoring by Region: How Is Georgia Affected?
Reshoring is benefitting the entire U.S.; but it is strongest in the Southeast and Texas. The Midwest is second, thanks to its strong industrial base. According to statistics from the Reshoring Initiative, the state of Georgia is the third-highest-ranked state for the number of reshored jobs combined with Foreign Direct Investment (FDI). From 2010 through 2015, Georgia has gained 11,551 manufacturing jobs from 43 companies, with an average 269 jobs per facility.
Along with federal tax incentives, Georgia incentivizes manufacturing through tax credits, business incentives and sales, and U.S. tax exemptions, including:
- Investment Tax Credit
- Job Tax Credit
- Research & Development Tax Credit
- Retraining Tax Credit
Without a doubt, U.S. manufacturing is on the rebound, due in large part to the return of offshored jobs back to the country. According to the Manufacturing Institute, industry analysts expect the sector to create at least another 700,000 jobs by the end of this decade. With the return of manufacturing capabilities to the U.S., we will likely see a surge in innovation, reinvestment in new products and a heightened ability of the U.S. industrial sector to compete with its foreign counterparts.
For more information about U.S. and Georgia tax incentives available to the manufacturing sector, please contact Debbie Torrance at 404.874.6244.