SOURCE: The Boston Consulting Group

The Boston Consulting Group

August 25, 2011 00:01 ET

New Boston Consulting Group Report Elaborates on Why America Is Likely to See a 'Manufacturing Renaissance'

Building on Earlier Research, Report Details How China's Escalating Costs and the Strategic Advantages of Making Goods Closer to Consumers Will Accelerate a Return of U.S. Manufacturing by Around 2015

CHICAGO, IL--(Marketwire - Aug 25, 2011) - A return of manufacturing to the U.S. will accelerate as companies take into account the full costs of outsourcing to China and the strategic advantages of making products closer to consumers in North America, predicts a new report by The Boston Consulting Group (BCG). The report, titled Made in America, Again: Why Manufacturing Will Return to the U.S., is being released today.

Made in America, Again expands on earlier BCG research into the structural cost shifts that are likely to lead to what the firm has called a "manufacturing renaissance" in the U.S. That analysis, released in May, forecast that, over the next five years, 15 to 20 percent annual increases in Chinese wages, a strengthening yuan, and other factors will nearly erase China's manufacturing cost advantage versus low-cost U.S. states for goods imported into North America, when higher U.S. labor productivity is factored in.

The new report analyzes those cost shifts in greater detail and explains why the U.S. will gain manufacturing even if Chinese productivity accelerates. Although Chinese productivity will continue to grow at an impressive 8.5 percent annually for the next five years, factory wages will rise twice as fast. Even if Chinese factories install the same highly automated assembly lines used in U.S. factories, that would not be enough to preserve China's fast-eroding manufacturing cost advantage for many products.

"Greater automation would undercut the primary advantage of outsourcing to China, which is access to cheap labor," said Harold L. Sirkin, a BCG senior partner and lead author of the study. "Once companies carefully look at all the costs, many will find they'll be better off making their products closer to customers in the U.S."

Companies also are paying more attention to the strategic advantages of locating production of many goods closer to U.S. consumers -- and to the downside of operating extended global supply chains. "When you include things like transportation, duties, and currency appreciation, any gains from sourcing in China may not be worth the many risks and headaches associated with operating supply chains extending halfway around the world," explained Michael Zinser, a BCG partner who leads the firm's manufacturing work in the Americas.

The report offers several examples of U.S. companies that have come to similar conclusions. Peerless Industries, for instance, is consolidating all manufacturing of audio-visual mounting systems in Illinois. The company is moving work from China to achieve cost efficiencies, shorten lead times, and gain greater control over manufacturing processes. Outdoor Greatroom Company moved production of its fire pits and some outdoor shelters from China to the U.S., citing the inconvenience of having to book orders from Chinese contractors nine months in advance. Rising shipping expenses, along with manufacturing costs, are behind Coleman Company's decision to move production of its 16-quart wheeled plastic coolers from China to Wichita, Kansas.

Some manufacturers, of course, are relocating factory work from China to nations with lower labor costs, such as Vietnam, Indonesia, and Mexico. But these countries will not be able to absorb all the higher-end manufacturing that otherwise would go to China, because they lack adequate infrastructure, skilled workers, scale, and domestic supply networks.

"For the past few decades, China has been the opposite of a perfect storm for the manufacturing world. It offered a total package that is unlikely to be matched by any other low-cost nation," said Sirkin, whose most recent book, GLOBALITY: Competing with Everyone from Everywhere for Everything, deals with globalization and emerging markets. "It is time for companies to fundamentally rethink their global sourcing strategies."

This does not mean that China will decline as a major manufacturing power. The nation will remain the world's fastest-growing consumer market. "Foreign companies will want to maintain their Chinese manufacturing operations to serve the Chinese market and the rest of Asia," said Douglas Hohner, another BCG partner who focuses on manufacturing. "But in terms of supplying North America, China will no longer be the default option."

Made in America, Again is part of an ongoing study of the future of global manufacturing that the firm's Global Advantage and Operations practices are conducting. This study includes analysis of how shifting production costs in China and elsewhere will affect specific industries.

To download a copy of the report, please go to

To arrange a press interview with a BCG expert, please contact David Fondiller at 212 446 3257 or

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