As manufacturing costs in low-wage Asian countries such as China creep steadily higher, the United States and its neighbors are witnessing the rise of a phenomenon known as “reshoring”: previously outsourced manufacturing jobs coming back to North America.According to a new report by AlixPartners, a global business advisory firm, lower freight costs, improved speed to market, and lower inventory costs are the main reasons that manufacturers are deciding to reshore. The Financial Times notes the benefits for Mexico:
“A lot has been written of late about America’s manufacturing rebound, and there certainly has been a very impressive rebound,” said Foster Finley, co-head of AlixPartners’ transport practice. “However, Mexico still remains the near-shoring locale of choice for companies looking to overcome the higher costs of doing business today in places like China.”Chas Spence, one of the report’s authors, said relatively low wages continued to make Mexico attractive. “Despite the logistic attraction of the US, the labour arbitrage is still a monumental hurdle for the US to overcome,” he said. “Labour costs are such a big part of the equation.”Russell Dillion, his co-author, said Mexico was particularly competitive in low-skill assembly work. “US workers can bring more productivity to the table, so that shrinks the gap between the US and Mexico. But in some industries – such as auto – the productivity and quality gap is not as large as it was two decades ago,” he said.
About 35 percent of the manufacturers surveyed said the U.S. was the most attractive place to reshore production, up from 21 percent last year. American manufacturing jobs have begun to inch up after a decade of decline, and output has consistently been on the rise even during the lean years.The progress in Mexico, however, is in many ways more exciting. The rampant drug violence in the north of the country tends to get the most media attention, but Mexico also has a growing industrial economy that is increasingly attractive to new businesses. It also has a thriving middle class, with consumer confidence at a four-year high.For the past two decades, the movement of global manufacturing to China and countries along its periphery seemed unstoppable. But fears that Asia would come to dominate global markets at the expense of the West were overblown. The same market forces that drove businesses to Asia are beginning to bring them back to the Americas.