"Made in America, Again" expands on earlier BCG research into the structural cost shifts that are likely to lead to what the firm has called a "manufacturing renaissance" in the U.S. That analysis, released in May, forecasts that, over the next five years,15% to 20% annual increases in Chinese wages, a strengthening yuan, and other factors will nearly erase China's manufacturing cost advantage versus low-cost U.S. states for goods imported into North America, when higher U.S. labor productivity is factored in.
The new report analyzes those cost shifts in greater detail and explains why the U.S. will gain manufacturing even if Chinese productivity accelerates. Although Chinese productivity will continue to grow at an impressive 8.5% annually for the next five years, factory wages will rise twice as fast. Even if Chinese factories install the same highly automated assembly lines used in U.S. factories, that would not be enough to preserve China's fast-eroding manufacturing cost advantage for many products, the report notes.
"Greater automation would undercut the primary advantage of outsourcing to China, which is access to cheap labor," said Harold L. Sirkin, a BCG senior partner and lead author of the study. "Once companies carefully look at all the costs, many will find they'll be better off making their products closer to customers in the U.S."
Companies also are paying more attention to the strategic advantages of locating production of many goods closer to U.S. consumers—and to the downside of operating extended global supply chains. "When you include things like transportation, duties, and currency appreciation, any gains from sourcing in China may not be worth the many risks and headaches associated with operating supply chains extending halfway around the world," explained Michael Zinser, a BCG partner who leads the firm's manufacturing work in the Americas.
A copy of "Made in America, Again" is available online.
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