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November 2011
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Nearshoring’s Not Necessarily
‘Hereshoring,’ But ‘Mexicoming’

By Tim Tirplett, Editor-in-Chief

First there was offshoring, as a wave of American companies set up shop overseas in low-wage markets to cut their production costs. Today, the economic pendulum is swinging back the other way, say some experts, leading to a “nearshoring” phenomenon that holds promise for North America.

Nearshoring, the relocation of manufacturing to countries closer to the end consumer, offers the potential for a mass return of jobs from China, says Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association. Citing a new study from the Boston Consulting Group, which estimates that some three million jobs could return to the U.S. thanks to nearshoring, Kuehl says three factors are driving this process: the rising costs of production in China, the rising costs of transportation, and improved efficiency in the U.S. and Europe.

“Wages and salaries have been going up fast in China,” Kuehl says, over 1,000 percent in some areas. “The Chinese are losing the cheap manufacturing sector to rivals in other parts of Asia and to the Latin nations like Mexico, where wages have risen by less than 25 percent. The BCG study shows that costs of production in China are going to rise inexorably in the coming years.”

Shipping goods from Asia to markets in Europe and the U.S. is getting more costly and will only keep rising as energy costs go up. “There also is the supply chain issue of speed and accuracy,” Kuehl adds. “It is far less reliable to ship by ocean cargo than by rail or truck, which gives an advantage to the producers that are on the same continent as their consumers.”

Major gains in productivity have made U.S. companies more competitive globally and allowed many to regain business from overseas. The BCG study suggests the United States can recapture millions of jobs simply by attracting U.S. manufacturers back to their home shores and by encouraging new manufacturers to locate here. “The inhibitions at this stage are seen as more political than economic,” Kuehl adds, pointing to the urgent need for more manufacturer-friendly trade policies and regulations in the U.S.

Other studies say the near­shoring trend may be exaggerated and that companies aren’t yet pulling their manufacturing out of Asia in big numbers. Many of those that are bringing their operations closer to the U.S. market are locating in Mexico, which still offers relatively low wages and freight costs. So for metal distributors in the United States, the message is that nearshoring is not necessarily hereshoring, and it might be time to reconsider that branch in Monterrey.  

  
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