All around the world, companies are moving their businesses back to their home countries in the process of reshoring. This movement recently picked up steam In the United States. Though this process has benefits, it may not be the best option for every business. Is reshoring the right choice for your company?
What Is Reshoring?
Reshoring is the opposite of outsourcing. Rather than sending portions of manufacturing processes overseas, reshoring brings these positions back to their home country. In recent years, reshoring America has become an increasingly popular movement. Thanks to the positive portrayal of reshoring in the media and its benefits, many companies are adopting this process.
How the Media Depict Reshoring America
Press releases, such as those from the Reshoring Initiative, put a positive spin on the high number of jobs companies are reshoring to the U.S. According to the report, 90 percent of the jobs added to the American manufacturing industry resulted from reshoring or foreign direct investment.
Part of the way our media shows reshoring is by emphasizing “Made in America” products. This position really speaks to people across the nation, especially those in the rust belt. While this initiative has a habit of being politicized everyone can still appreciate the higher number of jobs returning to Americans despite their political affiliation.
Benefits of Reshoring America
Reshoring offers multiple benefits for manufacturers, especially now. The new Tax Cuts and Jobs Act of 2017 created the lowest corporate taxes since the 1930s. Manufacturers can keep jobs in the U.S. without having to seek positions overseas to save on taxes. Additionally, the law removes the once-punitive corporate Alternative Minimum Tax. This allows companies to deduct investments in low-income areas, development and research costs, giving bigger tax advantages to staying stateside.
As the media put forth, products with the “Made in America” label have a certain cachet American items made elsewhere lack. Bringing jobs back to the U.S. allows manufacturers to restore this coveted label to their products. It’s possible now due to lower production costs in the United States. According to a recent Design News report, “[t]he total cost of foreign-made goods delivered to the US is a full 95% of the cost of US-produced goods.” Knowing this allows American manufacturers to stay competitive.
Another benefit of reshoring is restoring jobs lost to automation. With increased technology being used in manufacturing facilities, unskilled labor is less necessary, but the demand for skilled labor becomes higher. While we once outsourced these jobs to other countries, today, Americans are becoming more likely to take these positions thanks to reshoring. In the first nine months of 2017 alone, the U.S. gained 180,000 jobs in manufacturing from reshoring.
With all steps in the process in the same country, not only can manufacturers place the “Made in America” label on the product, but they also can save money. Reshoring reduces the time and shipping required to create a finished product. Manufacturers can get their parts or finished products quicker from the U.S., rather than waiting for weeks to receive shipments from overseas.
What Manufacturers Need to Move Home
Manufacturers who want to reshore need to think about their labor base. Automation caused half the loss of manufacturing jobs between 2001 and 2013, but this does not mean the job numbers have to remain low. With increasing automation in the U.S., more manufacturing jobs require specialized skills to operate and maintain automated equipment in plants. If you want to hire new employees in the U.S., you need to start looking for more skilled people or be willing to train hires.
The good news about finding educated employees in the U.S. is these jobs will remain here. It’s too costly to sacrifice the training to send these positions overseas. So, if you plan on reshoring your labor force, it will be a long-term decision.
Manufacturers cannot neglect an accurate total cost of ownership (TCO). TCO calculates the cost of making a product overseas and shipping it home. Fortunately, The Reshoring Initiative created a tool that can help business owners decide whether reshoring will be beneficial. American manufacturers can even use this calculator to make more compelling bids to companies. Mitchell Metal Products of Wisconsin did this to win a bid against an offshore producer the TCO found to be more expensive.
Challenges for Reshoring
Reshoring America is not an effortless process to undertake, though. Bringing the entire supply chain to the U.S. requires Americans to fill those jobs. In a tight job market, manufacturers can find it difficult to supply their companies with the skilled labor their facilities need. Currently, the U.S. is experiencing a manufacturing labor shortage. Retiring workers and a lack of education for upcoming employees fuel this.
To overcome the labor shortage, manufacturers need to rethink training. The trouble with skilled labor started when manufacturers began to consider training as optional. Make training mandatory to educate both existing employees and new hires on how to operate the machinery at a facility.
Another means of bypassing the labor shortage requires thinking of younger employees. Many high school and college students today have the technical knowledge to work in the highly skilled manufacturing industry. Encouraging training at these levels also can boost the numbers of future employees with the needed technical skills.
How to Make Reshoring Possible
Reshoring America is possible. But manufacturers will need to make changes to how they operate their facilities and hire employees. To return the entire process to the U.S., manufacturers must assess and overcome the challenges faced by their facilities. Only through making these changes can Americans recover the jobs once lost to overseas companies.
While reshoring offers numerous benefits to manufacturers, it may not be the choice for your company. Carefully evaluate how reshoring could affect your business before taking the steps toward moving all your manufacturing to the United States. If you feel confident in your company’s ability to overcome the challenges with reshoring, you could reap the benefits of this latest trend in American manufacturing.