Just when you might be thinking offshoring of U.S. manufacturing production is a foregone conclusion, conventional wisdom is being turned on its head.
Some of those jobs, even if only a trickle for the moment, are coming back.
The reasons are varied, but very real.
Wages in places like China and Vietnam are soaring, up in some reports by 40 percent. Freight and commodity prices are also soaring. And then there are the uncertainties surrounding intellectual property rights and government intrusion in countries like China.
U.S. high-tech companies offshored production because it was competitively unthinkable not to. It was a matter of survival in a tech industry where cost competition is particularly brutal. A high-tech executive said recently the difference between winning and losing a $30 million cell phone contract came down to less than two cents per unit.
Virtually no one expects manufacturing to return to the days of pre-globalization. That is especially true of U.S. manufacturing operations that sell into overseas markets.
But when a company considers an expansion for its U.S. business, the calculus is quickly changing. In 2000, according to a recent report in the Wall Street Journal, Chinese wages were about one fifth of those in the U.S. In 2010 they were nearly one third and they are forecast to rise to 44 percent in 2015.
The question is: Will U.S. policy makers let this opportunity slip through their hands by throwing up regulatory roadblocks to companies that want to build here?
On that, the jury is out. The Wall Street Journal noted that when Chesapeake Bay Candle decided to renovate a building in Maryland for a 100-employee plant rather than expand its extensive operations in Asia, the owners thought it would take $2.5 million and nine months.
But $3.5 million and 13 months later, the company is still waiting to open, the Journal said.
“I think our government needs to ask itself, ‘Are we really ready for business to come back from Asia,’” Chesapeake Bay founder Mei Xu, a Chinese immigrant, told the Journal.
Besides being more understanding of regulatory costs to business, the U.S. needs to look at its income tax rates, which at more than 35 percent, are among the highest in the world. It is widely understood that higher tax rates in the U.S. are part of upholding a better standard of living. But many argue those tax rates are stifling the ability of U.S. companies to create and maintain jobs here. The high U.S. rates relative to those of other countries also have the perverse effect of encouraging companies to invest their profits abroad.
One expert noted in the Journal that “China’s low-wage advantage will disappear over the next five years.”
The question is, will the U.S. miss this opportunity to bring some jobs back home?
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Brad Bollinger is Business Journal editor in chief and associate publisher. He can be reached at 707-521-4251 or bbollinger@busjrnl.com.
