Wage difference is not an argument anymore for further manufacturing in China. American companies began to move production centers, a trend that will intensify, according to Boston Consulting Group (BCG), the largest consulting company on business strategy in the world. This is probably the new trend which on this side of the Atlantic is called “insourcing”, “onshoring” or “reshoring” and means for companies the return of a part of manufacturing from China. Starting in 2015, it will be cheaper for companies to produce goods in America rather than in China, stated another study of BCG. Wage growth in China (18% on average each year until 2015), additional costs resulting from production in Asia and improved productivity in the U.S. are strong arguments in this regard, notes French newspaper Les Echos.
A better productivity
U.S. President Barack Obama visited last month Master Lock, a company that has recently created a hundred jobs at its plant in Milwaukee at the expense of its factory in China. He constantly asks the industry to move in the U.S. “We have an excellent opportunity to bring production in the country and to take advantage of it”, said President Obama, who made “Made in America” one of his campaign slogans. Manufacturing sector received new impetus in the U.S., as 300,000 jobs were created since 2010. Ford and Caterpillar were among the first who have relocated part of their production on American soil.
BCG recently published a study that showed seven sectors where it is likely that companies will move production in the future, among them are those in transport industry, metallurgy and IT. In September, the seven sectors made exports worth 200 billion in China. Between 10% and 30% of the production could be relocated in the U.S., which would add 20 to 55 billion dollars to the GDP. Manufacture of tires, a highly controversial issue between China and the U.S., could be the next sector that will decide to relocate, BCG predicts, as it was the case with companies that produce household appliances.
Improving the competitiveness of American manufacturers will have a positive impact on exports (additional revenue of 65 billion dollars over the next five years) and in conjunction with the relocation of companies on American territory, it could lead to the creation of 600,000 to 1,000,000 jobs, according to BCG calculations. This should contribute to the creation of 1.8 to 2.8 million jobs in other sectors of the economy and therefore reduce unemployment by 1.5% -2%.
The consulting firm states that Mexico is well positioned to benefit from some of these relocations. The study was not conducted in Europe, but associate director of BCG in Paris, Pierre Derieux, notes that “productivity grew by 2% -3% per year since 2005 in North America, while Europe has stagnated. Also, the dollar depreciated against the euro by 2% -3% per year. The reversal of the tendency that started to be noticed between China and the U.S. may not have the same trend for Europe”.
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