Insourcing: Why businesses are starting the move back to America

In 2012, GE invested $800 million into revitalizing Appliance Park in Kentucky, bringing back dishwashers that would be made in better quality and cheaper in cost, if made in America. Ford brought automotive production to Ohio and Michigan from China and Mexico. Emerson, an electrical-equipment maker, moved its factories to be closer to customers in North America and Mexico, instead of China. While not a majority yet, many manufacturing companies are insourcing, bringing some of their manufacturing back to the U.S.

A big factor in this shift is the substantial raise in wages in many formerly low-cost countries. According to the International Labour Organization, wages in Asia increased roughly 8% between 2000 and 2008. Compared to a 0.9% increase in the same time frame in many advanced markets, and a 2% decrease in American manufacturing wages since 2005, it can be easy to see why many companies are at least rethinking their money-saving strategies.

But the real issue is beyond simply paying higher or lower wages. Now that the gap in pay is closing and many costs in the U.S. are falling, manufacturers have to look at many factors; transporting and shipping goods, costs of downtime while products travel, and if products are taking too long to be made. Oil prices are three times what they were in 2000, making cargo-ship fuel substantially more expensive. In many lower-cost nations, the highly skilled worker population is too low to meet demands, resulting in lower quality products. There is also the cost of having to communicate processes and guidelines with plants in different nations, often taking time of already over-busy executives, engineers and managers, and the cost of protecting intellectual property in different business cultures.

Will the U.S. ever be the manufacturing hub it once was? Probably not. But it is encouraging to see more and more companies, of varying sizes, realize the wealth of knowledge and capabilities available in America for their business needs.

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