WCA January 2012

From the americas

Statue of Liberty Image from BigStockPhoto.com Photographer: Marty

their output will be consumed in the fast-growing domestic market and elsewhere in Asia.” Some production migrating from China will go to Mexico, where labour costs will remain lower than in either China or the US. But not as much as one might think, according to Justin Rose, a BCG principal and a co-author of the analysis: “America’s experience in these tipping-point sectors and its much larger pool of skilled workers, as well as logistical and security concerns, will make the US a better option for many companies.” The changing economics of manufacturing are already showing up in trade data. From 2001 through 2004, imports from China grew by around 20 per cent per year. That growth rate has slowed dramatically, to only around four per cent in the past few years. US imports from other low-cost nations also have flattened – and actually declined in 2009. The trend is especially pronounced in the tipping-point sectors. Douglas Hohner, a BCG partner and also a co-author of the analysis, said: “We are already starting to see some movement of production in these industries.” ❖ “Recent moves by companies underscore the new manufacturing math,” the BCG report asserts. It goes on to cite auto maker Ford, the IT maintenance provider NCR, Master Lock, All-Clad Metalcrafters, audiovisual equipment maker Peerless Industries, and irrigation control company ET Water Systems as having recently shifted the manufacture of some items from China to the US. Escalating Chinese wages are apparently not the sole factor. AmFor Electronics (Portland, Oregon) gave delivery responsiveness and ease of design revisions as reasons for relocating wire-harness production and some final assembly from China and Mexico back home to the American Northwest. In Michigan, a Korean company creates jobs in metal bending and tooling: staples of the state’s bygone industrial heyday In early Autumn of last year, a ceremony was held in Suwon City, South Korea, to celebrate a memorandum of understanding to strengthen the economic ties between the Korean province of Gyeonggi and the US state of Michigan. Among those present was Moon-Gyu Kong, CEO of GNS Automotive, the South Korean auto parts maker founded by Mr Kong’s father 40 years ago and which has now established an outpost in Holland, on the shore of Lake Michigan. Interviewed by Tom Walsh of the Detroit Free Press , the younger Mr Kong explained the overseas expansion in terms of the company’s wish to better serve its main customer, General Motors – and at the same time to move up from a Tier 2 to a Tier 1 supplier. In his view, an American presence is a big step toward fulfilment of that aim, and the US is more welcoming to newcomers than China: “still not an easy country for foreigners to do business [in],” according to Mr Kong. The choice of Michigan, where in December 2009 GNS bought out a Holland-based company with 28 employees, Automotive

Manufacturing

Production outsourced to China is coming back to the United States, heralding an American “manufacturing renaissance” The Boston Consulting Group, a respected global advisor on business strategy, has concluded that the current pickup in US manufacturing will accelerate over the next five years, boosting output by $100 billion and adding two million to three million jobs. In a report published 7 th October, BCG predicted that, with Chinese wages rising at 15-20 per cent a year, and continued appreciation of the yuan against the dollar, the gap between labour costs in Chinese coastal provinces and in America’s lower-cost states will shrink to less than 40 per cent by around 2015. This will have virtually wiped out China’s edge over the US in the American market. The BCG analysis identifies seven “tipping-point” sectors poised to return to a US manufacturing base over the five-year period: transportation goods, computers and electronics, fabricated metal products, machinery, plastics and rubber, appliances and electrical equipment, and furniture. Assuming increased US exports, in addition to their contribution to gross domestic product (GDP) these industry groups could lower the US non-oil merchandise trade deficit by 30-35 per cent. (“The US Manufacturing Renaissance: Which Industries?”) The willingness of BCG to be specific about the industry clusters most likely to return is supported by its research into the shifting economics of manufacturing worldwide and builds on reports released in August (“Made in America, Again”) and in May. The October analysis confidently asserts, “We project that China will lose most of the huge cost advantage over the US that it has enjoyed since it joined the World Trade Organization (WTO) in 2001. As a result, many companies will rethink where they produce certain goods meant for sale in North America.” The tipping-point sectors account for about $2 trillion in US consumption per year and about 70 per cent of US imports from China, valued at nearly $200 billion in 2009. The job gains would come directly through added factory work and indirectly through supporting services, such as construction, transportation and retail. When factors such as higher US productivity, the actual labour content of a product, shipping and others are taken into account, the cost advantage of manufacture in China of goods bound for sale in the US will be marginal. According to Harold L Sirkin, a BCG senior partner and lead author of the analysis, “That will make the US a much more attractive investment location for new factory capacity.” [Note: Mr Sirkin’s most recent book, Globality: Competing with Everyone from Everywhere for Everything, deals with globalisation and emerging markets.]

China will adapt

“This does not mean that factories in China will close,” said Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Instead, more of

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Wire & Cable ASIA – January/February 2012