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www.us-tech.com
June, 2013
A Contract Manufacturing Guide To Reshoring
By Alex Zeitler, Sales Engineer - BTW, Inc., Coon Rapids, MN T
he act of moving manufactur- ing back to the United States is called “reshoring,” whereas
“offshoring” is the process of shifting manufacturing overseas to areas of lower-cost labor. Offshore manufac- turing at one time was a natural pro- gression for electronic and other companies to reduce their labor costs by taking advantage of available la- bor pools and lower labor rates in other countries. But in recent years, for various
reasons, production is being moved back or closer to the United States, with expressions such as “on- shoring,” “backshoring,” “home- shoring,” and “inshoring” also being applied to the switch, and a term like “nearshoring” referring to cases where production might be moved close to the U.S., such as to Mexico. Numerous reasons can be given
for moving production from overseas back to the U.S., and these include the effects of the 2009 recession, such as near-record-high unemployment rates in the U.S. and a lack of manu- facturing jobs to support the econo- my. In 2009, unemployment in the U.S. hit a 26-year high of 10 percent, remaining between 8 percent and 10 percent ever since. The last time that unemployment in this country was 10 percent was during the 1981-1982 recession, which had been the high-
est point since World War II. As overseas labor forces have
been worked to the bone to meet de- manding production schedules, and
offshore and U.S. labor costs — is no longer quite so evident. As Harold L. Sirkin, a Managing Director at Boston Consulting Group, noted: “At 58 cents an hour, bringing manu- facturing back was impos- sible, but at $3 to $6 an hour, where wages are to- day in coastal China, all of a sudden the equation changes.” In addition, strikes
at production facilities have impacted the capa- bilities of some major companies to deliver their products. Computer giants Ap-
Technician inspects a circuit assembly
after selective solder processing. Re-shoring electronic assemblies has become a hot button for the industry.
as those labor forces have pushed for wage increases averaging 20 percent per year, the advantages of using overseas production facilities are no longer so clearcut, and many elec- tronics companies have recognized more and more benefits to reshoring their production facilities.
Rising Labor Costs The initial reason for shifting
production overseas-the gap between BIG ADVANTAGES There Are
to Partnering with a Shielding Leader! Dedicated sales and customer service teams
In-house engineering support Expansive manufacturing facility Comprehensive product offerings
ple and IBM, for example, were affected in Novem- ber 2011 by strikes at a keyboard manu facturer, as wor kers protected low pay with inflation driving
up the cost of living. In January 2012, 300 Chinese workers building Xbox consoles for Foxconn went on strike because of low pay and poor condi- tions.
The poor security for intellectual
property (IP) overseas is another fac- tor against offshore facilities and in favor of reshoring. Companies that have moved
manufacturing onshore after work- ing with offshore operations have
given a number of different reasons for the switch, including a need to have more control over their process- es and quality, a need to reduce lead times, and a high cost of protecting their IP. Representatives at these companies also felt that maintaining effective communications with off- shore facilities was difficult, and that working with offshore facilities left too much inventory in transit. By means of onshoring, engi-
neering and manufacturing teams could once again be under the same roof for more efficient teamwork and less time-consuming meetings be- tween these and other groups were needed over long distances. In addi- tion, some of those company repre- sentatives note that offshore salaries are steadily increasing, wiping out the labor cost advantages of offshore facilities, and that offshore labor is not always dependable, not always returning following a major holiday. The rising costs, instability,
lack of security, and various other reasons are causing many companies to reconsider the costs of maintain- ing production offshore. The Reshoring Initiative® organization and website (
www.reshorenow.org) were started by Harry Moser and others several years ago to help com- panies weigh the costs of using pro-
Continued on next page
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