Like a stuffed diner at the end of a meal, overseas manufacturing has hit a tipping point. According to consulting firm Boston Consulting Group, manufacturing costs in Asia are rising. While some large manufacturers are already moving jobs back to the U.S., more American businesses will soon have to decide if staying overseas still makes financial sense.
Companies already making moves
Earlier this year, earth mover Caterpillar (NYS: CAT) announced plans to bring jobs back home from Japan. Caterpillar's move should create 3,200 jobs in Georgia once the plant is up and running. But Caterpillar isn't making that move just out of national pride.
According to Caterpillar, the location was chosen "because of its proximity to the major ports of Savannah and Charleston." As a result, Caterpillar's Japanese facility will turn its focus to high-tech components, using the region's skillset to its fullest.
Toyota (NYS: TM) has also announced a move away from Japan. The auto manufacturer will add 400 jobs to its Indiana plant to support the Highlander range. Toyota Motor Manufacturing Indiana President Norm Bafunno said, "This project is part of our localization strategy to build vehicles where we sell them."
BCG points out in its report that as Asian production gets more expensive, companies will need to review the choices they've made about where they manufacture products. The fallback to Asian production used to be Mexico or other cheap-labor economies, but increased security costs and deteriorating logistics have changed all that. Now companies are taking sourcing, security, and other production costs into account, and the stable, reliable USA is looking better.
The job impact
BCG estimates that a rebirth of American manufacturing could create 600,000 to 1 million manufacturing jobs. To support those jobs, an additional 1.8 million to 2.8 million jobs could be created, putting a meaningful dent in unemployment.
According to BCG, the biggest unknown in the return to domestic manufacturing is time. Both Caterpillar and Toyota are planning on being up to full production speed by the end of 2013. A lot can go wrong between now and then. In order for a real flow of jobs to be created, companies need to continue feeling the pressures of rising wage costs and higher American demand. As Toyota highlighted, companies go where their customers are.
Playing the waiting game
This is not an all-or-nothing move to domestic production. First, many electronics, textile, and apparel companies are unlikely to relocate due to infrastructure and supply networks already in place overseas. Second, some companies won't move their whole operations back; they'll just build new factories in the U.S.
The U.S. is already moving in the right direction, having gained 139,000 manufacturing jobs in 2012. While job losses during the recession dwarf current growth levels, they're a step in the right direction.
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At the time this article was published Fool contributor Andrew Marder doesn't own in any of the stocks mentioned in this article, but he does work in America. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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