The Boston Consulting Group (BCG) recently released a report indicating that the United States is not only poised for a manufacturing comeback, but is already emerging as one of the "rising stars" in today's rapidly changing economy.
According to the company, U.S. exports have been growing much more rapidly than the overall economy during the last decade, driven by increasing productivity and a domestic oil and gas boom that has significantly reduced energy prices. This trend is set to continue as expenses grow in developing economies and low manufacturing costs take a back seat to supply chain efficiency and flexibility.
There are many factors supporting the resurgence in domestic production. BCG's Global Manufacturing Cost-Competitiveness Index considers a range of different expenses, including the cost of labor, relative productivity, energy costs and currency exchange rates.
New manufacturing technologies like 3D printing, shorter product lifecycles and the growing importance of being able to bring products to market quickly will all reinforce the so-called "reshoring" trend.
Not all companies have caught on yet
"Many companies are making manufacturing investment decisions on the basis of a decades-old worldwide view that is sorely out of date," BCG senior partner Harold Sirkin said in a press release. "They still see North America and western Europe as high cost and Latin America, eastern Europe, and most of Asia – especially China – as low cost."
However, today his firm sees that "there are now high- and low-cost countries in nearly every region of the world," which means many companies could be missing out on opportunities if they make decisions based on an outdated outlook.
Although China technically remains the most competitive country for manufacturing, its cost advantage over the United States is now less than 5 percent. Speaking to CNBC, economist Chris Williamson said that, factoring in "other considerations, such as a transport costs, lead-times to sales outlets and the ability to closely monitor quality control, many U.S. companies will see the choice of setting up a new production facility at home rather in Asia as a 'no-brainer.'"
U.S. will enjoy significant cost advantage over other developed countries
By the end of 2015, BCG estimates that the cost of operating a manufacturing facility will be up to 18 percent higher in nations like Germany, Japan, France, Italy and the U.K., relative to the U.S. In turn, the attractive cost structure will allow the country to capture as much as $150 billion per year in additional export value by 2020, with the majority of the underlying manufacturing work moving from Japan and Europe to the United States.
The changing global cost structure is also expected to bring manufacturing work home from China. BCG estimates that up to 5 million jobs in U.S. factories and related service industries like CNC machining will be created by 2020 as a direct result of companies shifting production operations from China to the United States. However, this outcome is far from guaranteed.
"It's difficult to gauge the extent to which the U.S. economy will benefit and over what time scale," Williamson, the chief economist at financial data firm Markit, told CNBC. Nonetheless, he said he agrees with the fundamental conclusions of the BCG report.
Manufacturers setting up shop in the United States may need support from a quality CNC machine shop to get their operations up and running.