More jobs return to the U.S.: Is it a trend?
(MoneyWatch) After years of jobs moving overseas by the million, some are trickling back. China's largest PC manufacturer, Lenovo Group, recently announced that it will open its first manufacturing plant in the U.S. The company expects to create 115 jobs in North Carolina, where it also operates customer service facilities and data centers. And in late September, General Motors (GM) announced that it would reverse years of IT outsourcing and bring most of its data-processing work back in-house, which will result in the auto giant hiring an estimated 10,000 people worldwide.
Politicians may vow to repatriate jobs that have been outsourced to China, India, Brazil and other low-wage havens, but to businesses the question of where to locate jobs isn't emotional or sentimental. Rather, they are interested in what makes financial sense. And increasingly manufacturing in the U.S. makes sense for a number of reasons.
- Manufacturing jobs loss to stop, says study
- Foxconn denies worker unrest slows iPhone assembly
- Why Apple's labor practices may never improve
For some companies, one reason to return stateside is cost. According to a study by The Hackett Group, a management consultancy, manufacturing in China has been losing its cost edge. Labor is still cheaper, but the price of goods is also affected by other factors. For instance, there is the "landed cost," to consider, which includes every expense to not only make products but also to get them to where they need to be.
Meanwhile, wages are creeping up in China as employers try to avoid the type of worker unrest that has plagued Foxconn, which makes Apple (AAPL) products. At the same time, U.S. wages have come down. Add the surging cost of fuel of shipping goods from Asia and other distant locations, the complexity of global logistics and other considerations, and what was a 35 percent price advantage in 2005 will, according to Hackett, drop to 16 percent next year. That's the level at which companies question whether outsourcing even makes sense.
Raw costs aren't the only consideration. Lenovo's rational for putting a factory in the U.S. isn't a sudden price break. In fact, the company will assemble hundreds of thousands, not millions, of units in North Carolina. Factories in China, Europe and Mexico aren't going away.
Lenovo counts on two benefits from U.S. facilities, as director of global supply chain communications Mark Stanton explained to CNET's Brooke Crothers. One is speed to market, including faster assembly of custom orders.
The other is the perception of customers, many of whom might prefer to see a "made in the U.S.A." label on the company's products. Lenovo competitors Apple and Hewlett-Packard (HPQ) outsource manufacturing overseas, which ironically could make the Chinese company look more American than the domestic ones.
Locating factories in the U.S. and playing up the local connection is an approach Japanese auto companies smartly used to help build their American market share. As companies from China and elsewhere in Asia compete to provide more than cheap commodity goods in the U.S., opening factories here might become a more common tactic.
Image: MorgueFile user Nightwind23