There is a movement afoot that gives me hope that the importance of manufacturing in the U.S.A. will become a priority for our civic and business leaders. ―Re-shoring or ―on-shoring refers to bringing back work to the U.S.A. that was previously outsourced to lower cost foreign competitors.

The idea of outsourcing once made perfect sense to the CEO of a large corporation. Products could be designed and engineered locally by skilled personnel while production could be sourced in Mexico, China, Taiwan, India, or some other low cost country to maximize profits. The countries that were the beneficiaries of this outsourcing welcomed the foreign investment to bring what they considered to be high paying jobs to their people. The corporate accountants were enamored because it enabled the company to build the same product for half the price while selling it for the same price as when it was produced in the U.S.A. Finally, Wall Street liked it because companies were more profitable and stock prices increased. As is often the case when something seems too good to be true…

Outsourcing has tremendous short term appeal, but in the long run it is a disaster. Surprisingly it is General Electric’s CEO, Jeffrey Immelt, who has become one of the most vocal supporters of re-shoring. GE practically invented outsourcing sending thousands of U.S. manufacturing jobs offshore. In a speech last year Immelt said, ―We should set a national goal to create high value added jobs and have manufacturing jobs be no less than 20 percent of total employment, about twice what it is today. And we should commit ourselves to compete and win with American exports.

There are many reasons why the on-shoring movement is gaining traction. My cynical side says mega company CEO’s like Immelt have realized that while outsourcing reduces the cost of manufacturing, it also reduces the income of their best customer – the U.S. consumer. Eventually lower paid service sector workers will not be able to afford the products that are built offshore no matter what the price. This phenomenon has been going on for years, but was largely masked by debt fueled consumption in the U.S.A. Re-shoring is only one solution the GE’s of the world are touting. Another, is to develop the domestic markets of the nations to which the jobs were outsourced. This makes sense because workers in these countries now have more wealth. The higher-paying manufacturing jobs that U.S. companies have provided allow these workers to afford the products that they produce.

There are a multitude of other, less cynical reasons that re-shoring makes sense. U.S. companies are beginning to realize that it is very difficult to remain innovative when design and engineering are not close to the manufacturing floor, when transportation costs
exceed product costs, when currencies are allowed to appreciate to their actual value, when workers in developing economies demand higher wages, when automation and lean manufacturing are put to practice in the U.S., and when the carrying cost of higher inventory levels are taken into account.

Whatever the reason, I am pleased to report that re-shoring, on-shoring, and in-sourcing are becoming common terms in the lexicon of U.S. companies. I hope that Immelt and like minded CEO’s of mega companies like Caterpillar (also a proponent of re-shoring) can help to focus the attention of our Senators and Representatives on the importance of manufacturing on our shores. It is only through the cooperation of business and government that the U.S.A. can begin to rebuild our manufacturing base and thus reverse the wealth-transferring tide of the past 30 years.

Please feel free to contact me with questions, comments or suggestions at randy@action-machinery.com

Randy Breitenbach, RMTMA Government Affairs Liaison

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