With outsourcing as popular as it’s been for decades, no one would be surprised to learn that the die cast production in the United States is not where it was in 1980. But is the tide finally turning in our favor? We will explore the onshoring or reshoring movement (pun unintentional) in this series of blog posts.
To begin, consider that a survey of 252 North American Die Casting Association (NADCA) members reported that 23 percent had gained business from offshore competitors in a recent year. Manufacturing appears to be returning to our shores for the same reasons that offshoring began decades ago: quality, service, delivery and price.
Why not continue to manufacture in emerging markets?
Proponents of offshoring list low labor costs for non-core competencies as the major reason for sending work to emerging markets. But American OEMs are learning a hard lesson when they factor in transportation and a range of so-called “hidden” costs with those lower labor rates. While labor rates may have been significantly lower in years past, American companies are learning that the gap has been closing in the major emerging economies like China and India.
Cheap labor not so cheap anymore
In China, the aging of the labor force is causing shortages as younger workers refuse to accept the extremely low wages and long hours their parents and grandparents gladly accepted. 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.
After adjusting for higher American productivity, the wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.