‘Reshoring’ is all the rage as allure of ‘Made in China’ fades

‘Reshoring’ is all the rage as allure of ‘Made in China’ fades

Sunday, Feb 02, 2014

Jeremy Au Yong

The Straits Times

Mr Craig Wolfe, 61, has been in the rubber duck business for over a decade. And for all that time, the ducks – even those designed to resemble American sports stars and presidents – were made in Shenzhen, China.

About a year ago, he decided to bring some of those ducks home. “I’m in a business invented in America. What business do you know that was invented here and the entire industry leaves?”

But while part of the reason for the return was emotional, the numbers worked out too.

Higher costs in China and willingness by customers to pay a premium for a product made in America meant his domestic division quickly turned a profit.

Today, one quarter of his ducks are made in New York and he is looking to move up to half of his production back home over the next two years.

Mr Wolfe’s company, CelebriDucks, is part of a wave that has recently become a buzzword among industry watchers in the US and Europe: “reshoring”.

Reshoring is the reversal of the offshoring of manufacturing to Asia over the past 50 years.

The trend, driven largely by rising labour costs, is drawing keen interest both because it is seen as a balm to ailing Western economies and that it possibly heralds an end to the “Made in China” era.

The change in direction by some large companies has grabbed headlines in recent months. Perhaps the most notable is that of tech titan Apple, which famously uses Foxconn to make all its iPhones and iPads in China. It said last year that it would start making its new Mac Pro desktop computer in Texas.

Latest figures from Honda point to a similar trend. It became the first Japanese carmaker to become a net exporter of cars from the US.

Last year, it exported 108,706 cars from its US plants while only importing 88,537.

Other examples include General Electric, which has started making water heaters, fridges and washing machines in Kentucky; and Caterpillar, which plans an excavator plant in Texas.

For now, there is no definitive measure of just how big the reshoring push is, although evidence suggests that US manufacturing is showing early signs of a revival despite headwinds.

A Boston Consulting Group report notes that despite the 2008-2009 global financial crisis, the US export sector has grown an average of 8 per cent every year since 2005. Says BCG partner Justin Rose: “We are not saying that people are going to be shutting down Chinese factories and moving them to the US. It’s more about the incremental capacity that is coming on, we think the US is a really attractive place to put that capacity.”

The company projects that vehicles, oil and coal products, chemicals and electronics will be the main growth areas.

Organisations advocating reshoring are upbeat. Mr Harry Moser, the founder of the Reshoring Initiative, says the number of media reports about companies reshoring have risen in recent years.

“Back in 2008, we were looking at about two articles a month. Now, we are averaging 11 articles a week,” he says.

The initiative was started in 2011 to give advice to businesses looking to move back. It also provides a complex calculator to figure out how much it will cost to manufacture in the US.

In his State of the Union address this week, President Barack Obama gave a nod to reshoring when he mentioned that over half of large manufacturers were thinking about repatriating work from abroad.

All of this is taking place as the “Made is China” allure for businesses is fading. A decade ago, it was 17 per cent cheaper to make goods in China than in the US. Now it is just 5 per cent.

While wages in the West stagnated or even dipped in the past five years, Chinese wages have risen by between 15 and 20 per cent a year.

Other factors that chip away at the China advantage include a relatively low US dollar, low domestic energy costs and steep shipping costs due to high crude oil prices.

To be sure, doubts remain. A Morgan Stanley report argues that high US tax rates and likely rise of the dollar will discourage moves to reshore.

So too will an aggressive push by the administration to raise the minimum wage.

Many companies looking to sell their goods in Asia also want to retain a strong presence in China; environmental regulation is more lax in Asia and finally, Chinese manufacturing capacity exceeds anything found in the US.

Mr Wolfe said he struggled to find a US partner that could make the moulds needed for his rubber ducks.

Offshoring had stripped the country of the required skills and machines.

“They totally screwed up the first batch of moulds. I had to redo everything,” he said. “It took 60 years to go away, manufacturing is not coming back overnight.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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