The production cost gap between the U.S. and China is steadily decreasing, but the number of U.S. jobs gained through near-sourcing will barely offset the amount of U.S. manufacturing jobs to be lost to countries with cheaper labor, according to a recent study.
Although the gap in total landed costs between the U.S. and China will shrink to 16 percent next year, few low-skill manufacturing costs will return, according to the study by The Hackett Group. The jobs will instead go to other emerging markets with lower labor costs, including India, Thailand and Vietnam.
"Our findings debunk a myth about the future of manufacturing that has been much discussed in the press recently: that manufacturing capacity is returning in a big way to Western countries as a result of rising costs in China," according to the study.
A well-publicized study by the Boston Consulting Group suggested that North America will gain 3 million jobs over the next several years, because shippers will move production back from China or will choose to add capacity in the U.S and Canada instead. President Obama referred to the study findings in a speech earlier this year on the growth and promise of U.S. manufacturing.
Although the impact of near-sourcing has been exaggerated, the Hackett study said there will still be some instances where shippers will bring production back to the U.S. The total landed cost gap between the U.S. and China has been cut by nearly half in the last eight years, the report stated.
"As the total landed cost gap falls below 15 percent, the economic opportunity will require more companies to rebalance their supply chains and move capacity back closer to customers in the U.S.," said David Sievers, of Archstone Consulting, a division of Hackett. Researchers studied nearly 30 companies, which were mainly U.S.-based Global 1,000 corporations.
Thirty-five percent of the companies studied were involved in moving production from high-cost countries to low-cost countries, while more than 20 percent were shifting production the opposite direction. This led Hackett analysts to conclude “that the continued outflow of capacity from advanced economies will more than offset any capacity being offshored.”
“In fact, there is no dominant movement of capacity in any single direction. Rather, companies are continuously optimizing their manufacturing footprint in response to changing conditions,” according to the report.