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The changing geography of supply chains
In the past year or so, a number of industry pundits have predicted that more manufacturing would leave Asia and come back to the United States. They point to rising wages in China, as well as to the high cost of transporting goods across long distances due to climbing oil prices, as the main factors driving this shift.
What kinds of products will migrate back to U.S. shores? A recent study conducted by the research firm TD Economics concluded that capital-intensive industries—such as computers and electronics, machinery, fabricated metals, electrical equipment, and plastics and rubber—are likely to lead the way. Labor-intensive industries like apparel probably will stay offshore.
But there are a couple of other factors behind the U.S. reshoring trend that have not gotten as much attention as labor and fuel costs. The first is the increasing use of robots. When manufacturers rely on robots rather than on human workers to do repetitive tasks, a plant's location becomes less important. It essentially costs as much to run a robot in Asia as it does in the United States. A robot, moreover, works 24 hours a day, seven days a week—without coffee breaks—and it doesn't require health insurance. It's worth noting that the giant contract electronics manufacturer Foxconn reportedly is starting to replace some workers with robots in its Chinese factories.
The emergence of additive, or rapid prototype, manufacturing is another factor that will promote reshoring. In additive manufacturing, a special printer follows a computer design, applying plastic or metal in layers to make a three-dimensional product. This technology makes it possible for manufacturers to produce high-value, one-of-a-kind items on demand to consumers' specifications, and therefore it is ideally suited for domestic production. Low-value, commodity-type products, such as clothing or garden hoses, will continue to be made offshore.
The return of some manufacturing to the United States will not spell an end to global supply chains. But supply chains in the future may not be as extensive and far-flung as they have been for the past few decades. That's because multinational companies are expected to increasingly embrace the regional theatre concept. One reason is that the rapid growth in consumer spending in developing economies is fueling demand for products. This will encourage manufacturers to maintain plants either in or adjacent to nations like China and India to serve that demand.
In the not-too-distant future, we could see the development of three major supply chain theaters: one for Europe, one for Asia, and one for the Americas. While more manufacturing undoubtedly will return to the United States—and other developed economies where offshoring has been the norm—supply chains will continue to forge global links for some time to come.
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