PricewaterhouseCoopers dangles possibility of U.S. manufacturing 'reshoring'

A new report says the labor-cost rise in China is a minor factor compared to other market and regulatory factors that may pull manufacturing back into the U.S.

Sep 20th, 2012

PricewaterhouseCoopers (PwC) recently published a report entitled "A Homecoming for U.S. Manufacturing?" in which the firm dangled seven factors that play into manufacturers' decisions whether or not to pull offshored production back into the United States. "While rising labor costs are part of the story, a range of factors could drive a sustained manufacturing renaissance in the U.S. beyond any cyclical recovery," PwC said when announcing the report's availability, "potentially improving investment, employment, production output and research-and-development."

Bob McCutcheon, who leads PwC's U.S. Industrial Products business, said, "The reviving industrial manufacturing sector is instrumental to U.S. economic recovery. Beyond the cyclical rebound, however, a host of structural changes is emerging that may lead to the U.S. becoming an important location for basing production and R&D facilities for several industries. In addition to trends in labor costs, other factors include the need to reduce transportation and energy costs, the emergence of the U.S. as a more-attractive exporter, and the relative attractiveness of the U.S. markets."

The report details the impact the following seven factors are likely to have on the potential reshoring of manufacturing.

  1. Transportation and energy costs
  2. Currency fluctuation
  3. U.S. market demand
  4. U.S. talent
  5. Availability of capital
  6. Tax and regulatory climate
  7. U.S. labor costs

In its summary of the report, PwC points out that some product types are more likely to be reshored than others. Those that suffer the most from supply-chain disruptions are better candidates, PwC says, because such disruptions "totaled $2.2 billion in financial impact for U.S. industrial products companies in 2011."

Beyond the supply-chain impact, "relocating manufacturing production in the U.S. generally holds greater advantages for some industries over others," PwC says. It points out that "chemicals, primary metals and heavy-equipment manufacturing industries stand to benefit the most from maintaining or expanding facilities in the U.S. given opportunities and cost incentives to reshore domestically." On the other hand, "Wood, plastic and rubber products companies could also benefit from changes in domestic costs, but lower net imports in these industries may limit the full economic benefits of onshoring in the U.S."

PwC downplays the labor-cost rise in China as a minor rather than major factor in these decisions. "The cost premium [for U.S. labor over China labor], based upon the difference in absolute wages ... has continued to expand," PwC says, "making it possible that labor arbitrage involving China and other low-labor-cost emerging markets will persist."

You can find out more about the PricewaterhouseCoopers report here.

More in Copper