The trend toward nearshoring — bringing overseas manufacturing operations back to closer-to-home locations — has North American economic development officials and economists thinking hopeful thoughts. The latest AlixPartners Manufacturing-Sourcing Outlook finds that the United States has actually hit parity with Mexico as a preferred location for nearshoring.
The report includes a survey of C-level executives from across more than 10 manufacturing-related industries, and 37 percent of the respondents cite the U.S. as the preferred nearshoring spot, the same percentage that prefer Mexico. Just about half of the respondents now see nearshoring as an opportunity for serving domestic demand — and of those respondents, a third are already in the process of nearshoring, while another 57 percent expect they will be within three years.
The AlixPartners report warns that it would be a mistake to take a broad-brush approach and consider the U.S. as the most competitive bet for all products. The equation is different, for example, depending on whether you’re making fabricated parts, consumer products or assemblies. And at the moment, the total landed costs for each of those product types remain lower in Mexico, China, and India than in the United States.
With regard to China, AlixPartners notes that its exchange rate has been strengthening against the dollar since 2005. If that trend continues, along with typical wage inflation trends and the expected increase in ocean freight costs, China’s landed cost will be approaching parity with America’s by 2015. Mexico and India will, however, still be cost-competitive, according to AlixPartners.
And beyond the question of costs, China still has labor and plant capacity and an industrial policy rich in training and incentives. Skilled manufacturing labor is not always as easy to come by in the U.S., and companies here would need plants and equipment again if they want to bring manufacturing back home. The bottom line, says AlixPartners, “Companies should look twice before they leap.”