Daily Archives: June 12, 2013

Even China Knows that You Should Home (Market) Source!

SI has been telling you since 2007 that you should be Home Sourcing. SI has outlined the Advantages of Home Country Sourcing, shared a great post on Home-Shoring from the Manufacturing Innovation Blog, and given you another reason to source close to home. But have you listened? For the most part, no.

But you should, or this is another area where China is going to eat your lunch too. As per this recent article over on the Washington Post that asked if U.S. Manufacturing [is] Making a Comeback, a Chinese company has just set up a factory in the United States!

This January, Lenovo (which acquired IBM’s PC business in 2005), a Beijing-based computer maker, opened a new manufacturing line in Whitsett, N.C. to handle assembly of PCs, tablets, workstations, and servers. Why? According to Jay Parker, President for North America, it needs the flexibility to assemble units for speedy delivery. But, more importantly, the math adds up. Chinese wages are on the rise, the risk of loss to piracy (at sea) is increasing every year, and we have reached the point where the higher North American labour costs can be offset by savings on logistics. And Chinese companies know logistics costs as good as anyone. (As per Sunday’s post on China Packaged Goods, with a [major] stake in 16 global ports, thousands of shipping lanes, and a fifth of the world’s container fleet, China pretty much sets the prices for Ocean shipping these days.) A barrel of crude oil that was $27 in 1993 and $35 in 2003 is now $88 in 2013, inflation adjusted. That’s over a 3X increase since the early stages of the outsourcing craze. And China wages have increased so much in China over the last decade that a new study just found that labour costs are now 20% lower in Mexico. (Source: SCDigest) Plus, the wage gap between China and North America is expected to shrink to a mere $7 per hour by 2015! When you factor in logistics costs and loss due to theft, IP theft, and (ocean) piracy, that’s nothing! (Especially when the US is on pace to have lower manufacturing costs than Europe and Japan by 2015! There’s a reason Nissan, Honda, and Toyota are exporting from the US. That’s right, exporting from, not importing into.)

When you add it all up, and consider the production efficiencies that come from our ability to constantly innovate better processes, it just makes sense to bring (last stage) manufacturing back to North America. (Especially when the productivity of North American workers keeps rising.) Maybe you still outsource key components, but you certainly don’t outsource washing machine production, for example. The last thing you do is ship empty space or dead-weight.