The Case for Manufacturing in North America

For the first time in perhaps a decade, surveys indicate a decrease in the number of companies considering moving manufacturing overseas (primarily China) and an increase in the number of companies considering bringing production back home. Reasons cited for this change include:

• cost in time and travel to visit suppliers
• difficulties in separating engineering/design from manufacturing
• intellectual property risks
• increased shipping costs (skyrocketing oil prices)
• long supply chains when just-in-time deliveries are critical

 

Ten years ago, manufacturing costs were measured more in terms of direct product costs – perhaps due to a lack of first-hand experience with other factors similar to those listed above. The emphasis was on direct labor costs, which while still low in China compared to North America, have actually risen at an astounding average of 15% annually over the last ten years in China. The gap is clearly closing, and closing at a significant pace when all factors are considered.

Another factor in the switch relates directly to four of the five points cited above – and that is the advantage of having production closer to the end market. So for those companies manufacturing products in China which are in the end destined for North American customers, the pressure to at least consider repatriating production is even stronger.

It was a similar situation back in 1993 when NAFTA was clearly on the horizon. At that time I was a member of the executive group at Champion Road Machinery (and an investor), and we felt it was strategically important to consider what the cost differentials might be if we manufactured some or all of our machinery in Mexico vs. in Canada. The manufacturing VP and I decided we should consider a broader range of factors than simply direct labor costs, and when we completed our study we determined that the modest potential savings did not justify the costs (and risks) of relocation. I can say that at the time I left Champion in the latter part of 1995, our decision was even more clearly ‘right’ than we believed it to be in 1993 – at least for Champion.

So … what conclusions can be drawn from all of this? I would suggest at least the following:

• outsourcing manufacture to China should NOT be considered to be a no-brainer
• locating manufacture close to the products’ markets is clearly important
• in a SWOT analysis, ‘NA-based manufacturing’ should be considered a strength and viewed as a strategically opportunistic weapon rather than automatically relegated to the ‘weakness’ quadrant

 

In my next blog, titled ‘Look South Instead of East’, I will explain why small to medium-sized enterprises should look to Latin America (vs. China and the ‘Far East’) as an attractive export market.

 

JP Roszell and his partner Verne Milot work with business owners who have the burning desire to take their businesses to the next level – whether it’s past the energy-draining and cash-consuming start up phase (which can last for years) or to the level where profitable growth takes place without the owner’s personal day-to-day involvement. Verne and JP work directly with business owners to improve ALL aspects of their businesses.

With regards to selling, JP has had a lifelong passion for sales and sales people. His sales groups have successfully built profitable sales at every company with which he has been associated, from the smallest to some of the biggest companies in their industries. He knows what it takes.

Looking for more than a business coach?  JPand Verne are different. They have been there, and if they can’t help you, they will say so. 

Call today – JP can be reached at 705.725.4104  or email him at JP@Growth-Associates.com

 – Verne can be reached at 905-688-2226 or email him at Verne@Growth-Associates.com