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Next low-cost manufacturing center: the United States

Next low-cost manufacturing center: the United States

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Boston Consulting Group predicts US is on the verge of a 'manufacturing renaissance,' and here's why.

If you think the future of manufacturing belongs to China, India or other emerging economies with lower wages, think again. At least one analyst firm is predicting that reinvestment during the next five years could "usher in a ‘manufacturing renaissance’ as the United States becomes a low-cost country among developed nations."

This fresh thinking comes out of The Boston Consulting Group, which predicts that within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain US states become some of the cheapest locations for manufacturing in the developed world.

BCG also credits shrinking wage gaps and government incentives within the US:

"With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market."

As Harold L. Sirkin, a BCG senior partner, says he expects "net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

Shrinking wage gaps, as described by BCG, are part of the story. There's also a technology side to the story. There are already some new concepts coming out of US shops, including "desktop manufacturing," made possible by 3D printing. If 3D printing takes hold, mass production within the US could be far cheaper than producing and shipping products from overseas.

BCG also cites examples of US companies that are rethinking their production locations and supply chains for goods destined to be sold in the United States:

Caterpillar Inc. announced last year the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company's U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.

NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs.

Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the United States.

Cheaper wages are only just part of the story, BCG adds. Skillsets also play an important role in a region's ability to support business and manufacturing. “In the U.S., we have highly skilled workers in many of our lower-cost states. By contrast, in the lower-cost regions in China it’s actually very hard to find the skilled workers you need to run an effective plant,” says BCG's Doug Hohner. Plus, there are infrastructure matters to consider. Smaller low-cost countries simply lack the supply chain, infrastructure, and labor skills to absorb all of it, Hohner says.

(Thumbnail photo: Joe McKendrick.)

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Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure