Can the US, in fact, be the new rising star in manufacturing?
“We are hands down more competitive than Europeans both because of energy costs and because of lower labour costs,” says Kati Suominen, professor of global economics and management at the UCLA Anderson School of Management. Indeed, according to a 2014 study by the Boston Consulting Group (BCG), manufacturing costs in the EU have risen by up to 10% relative to the US over the last decade.
“We should, if projections of the direction of Chinese labour costs are right, be more competitive than China right about now—even if we, too, will have some wage inflation coming as slack in the economy decreases,” says Ms Suominen. In fact, and according to the same BCG study, China’s advantage over the US in manufacturing costs has gone from 15% in 2004 to less than 5% in a decade.
Ms Suominen cautions that labour costs may, in the near future, become less of an issue than the availability of technologies such as 3D printing and factory automation as cost drivers for manufacturing. Even so, she says, “What I’d conclude at this point is that, yes, the United States is well-placed to be the global leader in manufacturing.”
Not so fast, says Willy Shih, professor of management practice at the Harvard School of Business. Although he agrees that labour costs are currently relatively low in the US and that lower energy costs do give the country competitive advantages—notably in petrochemicals and other products that depend on oil and gas feedstocks—he cautions that manufacturers that left the US for cheaper shores may not be so easy to get back.
One problem, he notes, is that the US “industrial commons” has atrophied—the supplier base, workforce skills and other elements needed to support a resurgence in manufacturing may not be up to the job.
Mr Shih also believes that the US manufacturing boom is nuanced, with some sectors ripe for reshoring and others that most likely will never come back. Smaller items, such as consumer electronics, will probably continue to be manufactured in Asia, he maintains. “China has captured the electronics supply chain, so it just doesn’t make that much sense to bring stuff back. The cost to pack all the components and ship them to the US for assembly is more than if you just assemble the thing over in Asia.”
That’s a problem, says Mr Shih, that doesn’t apply so much to larger items, including the products made at Appliance Park. With a greater volume and, hence, a relatively lower value density than for an item such as a mobile phone, it makes more sense to bring the manufacture of, for example, a refrigerator or a car back to the US. “Honda this year is going to export more cars that are made in the US than it will import to the US from Japan,” says Mr Shih. In other words, large manufacturing such as autos, airplanes or appliances should continue to do well in the US.
As for an atrophied manufacturing infrastructure, that’s a challenge that Appliance Park, for one, doesn’t seem to have. GE invested $800m in upgrading the facility between 2009 and 2012 and announced its intention to invest another $277m in the near term even as it finalised the deal with Electrolux.
Since the deal for Electrolux to acquire GE Appliances won’t be concluded until mid-2015 at the earliest, it’s too soon to tell what the future holds for Appliance Park. But as the European appliance maker completes its largest acquisition, it seems to be betting big that manufacturing in the US will continue to remain competitive.
This post first appeared on GE LookAhead
Author: Michael Belfiore is a writer for GE LookAhead.