Earlier this year, Baird Capital examined the recent trend of onshoring, whereby primarily larger Western companies are increasingly bringing home full-scale manufacturing processes and jobs previously sent overseas – mostly to China.
The relative cost of labor in China, where wages continue to rise, is a large driver of this trend for U.S. and European companies. According to the U.S. Bureau of Labor Statistics, the ratio of an average Chinese factory worker’s wages to those of a factory worker in the United States increased from 3% in 2000 to 9% in 2010. Chinese wages are expected to reach 17% of U.S. wages by 2015.
Factor in the logistical issues of maintaining offshore operations – including language and cultural differences – and fluctuating transportation costs, and it becomes easier to understand why some companies would opt to make the goods they sell in locations closer to their largely Western consumer bases. Recent examples include General Electric, Wal-Mart and Apple, whose size and scale give them some negotiating leverage in a U.S. market where labor costs are already comparatively lower than they’ve historically been. However, what works for larger, more-established companies may not be the right course for smaller companies still establishing a brand identity, particularly in a global marketplace where emerging markets are creating new consumers as their economies grow
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