We’re all looking for good news on the economic front, so I took note of a report published earlier this month by the Boston Consulting Group (BCG) predicting a United States “manufacturing renaissance” over the next five years as the cost gap to manufacture in the U.S. narrows in comparison to low-cost countries such as China. The report cites rising wage rates in China which are growing at 17 percent annually, high U.S. worker productivity, the increasing value of Chinese currency combined with a lower value dollar as reasons for the shrinking cost gap.
“We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015,” says BCG senior partner Harold L. Sirkin in a company press release summarizing the study. “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.” The BCG report emphasizes that companies must consider total production costs in making decisions on where manufacturing facilities should be located. U.S. labor costs will still be higher than China, but with labor costs making up only 20 to 30 percent of the total cost of many products, the cost gap between U.S. and China could shrink to 10 to 15 percent before inventory carrying costs and transportation costs are factored in. When these costs are added, the cost difference will be negligible.
The BCG report acknowledges that products with high labor content will continue to be primarily manufactured overseas, including such items as textiles, apparel and TVs. Products with less labor content such as household appliances and construction equipment are more likely to gravitate back to the U.S., and the report mentions Caterpillar and NCR Corp. as companies that have already shifted manufacturing production back to the U.S..
The report identifies South Carolina, Mississippi, and Alabama as states that have flexible work rules and the type of government incentives that will make them attractive locations for a U.S. manufacturing resurgence. North Carolina is not far behind based on these criteria, so I asked Scott Millar, president of the Catawba County Economic Development Corp., for his thoughts on the report, as well as the potential impact on our area.
“I agree to a point,” Millar said. “Demand for products will be huge in emerging markets such as China, India and Brazil, and those countries will not be able to satisfy it themselves. There will be great export opportunities for U.S. companies to help fill this demand.” Millar remains cautious about competing against low-labor countries simply on price. “If you’re going to fight with China strictly on low cost, it’s a tough fight to win.”
Millar has had a roller coaster ride in his role as recruiter-in-chief of industry to Catawba County. Ten years ago with an unemployment rate of less than 4 percent, Millar couldn’t get companies to talk to him due to a scarcity of available employees. With today’s 12 percent-plus unemployment rate, Millar sees new opportunities. “We’ve been very successful with data centers,” he said. “But as Charlotte becomes known as an energy hub we have opportunities in the energy industry.” Millar mentions Turbocoating Corp. USA as an energy-related company which recently announced they will add over 100 jobs to our area.
Millar also notes Catawba County’s strong foundation for manufacturing, with the Manufacturing Solutions Center, the Center for Engineering Technology, as well as strong educational institutions combining to make our area an attractive location for new business.
For an area that has been a traditional manufacturing stronghold, a manufacturing renaissance would be a good fit.
Do you have a business question or topic that would make a good column? Send your ideas or questions to jeff.neuville@b-assistnc.com and share your business experience with others.
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