“Insourcing” Means Employers Are Finding It Less Expensive to Have Employees Stateside
It’s a familiar story: labor costs get too high, so management decides it will be best, in the long-run, to send jobs to another country.
Only this time, the story has a twist ending. It is China – long considered an oasis of exceedingly cheap workers – that is losing jobs and the United States that is gaining them. Over the past two years, several major and not-so-major companies that had been outsourcing work to China have decided to bring some of the jobs back to the U.S.
The trend — often called “reshoring” or “insourcing” — may be in its infancy, but it is not insignificant. A recent survey by Boston Consulting Group found 37 percent of manufacturing executives planning to move production back to the U.S. or giving serious consideration to such a move.
The main reason? Labor costs in China are rising quickly — up to 10 percent in the last year alone, by some accounts. More than half of those who told Boston Consulting they were thinking about or planning a move cited labor costs as a principal consideration.
As China’s economy continues to grow, increasing unionization and labor unrest could also make Chinese labor less attractive to U.S.-based companies, according to a report from business advisory firm Alix Partners.
In addition to the rising price of labor, respondents named product quality, cost of transporting goods, ease of doing business, and accessibility of customers as reasons to think about manufacturing domestically. Other experts have noted the risk of intellectual property theft in China.
Among the most prominent companies to shift jobs back to the United States is General Electric, which announced in February that it would open a new water heater manufacturing facility in Louisville, Ky., creating hundreds of jobs for high-skilled American workers. The previous model of the water heater has been manufactured in China.
Security products company Master Lock has moved about 100 jobs from China to its Milwaukee, Wis. location over the past two years. The rising cost of labor, increasing logistical challenges, and difficulties finding enough skilled workers drove the move, according to a press release from the company.
In Chattanooga, Tenn., lighting systems company Global Green Lighting has decided to move all of its manufacturing activities — some 250 jobs — from China to the U.S., according to owner Don Lepard.
So far, the trend of returning jobs the United States is far from mainstream; China remains the world’s leading manufacturing center and looks to hold on to that position for some time to come.
But the gap between China and the U.S. seems to be slowly narrowing. According to the Boston Consulting Group’s analysis, the trend is likely to accelerate around 2015, with as many as 3 million jobs added in the U.S. by the end of the decade.