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October 26, 2012
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The Beginning of the End of Outsourcing Manufacturing to China?


Cost of OutsourcingFor many years the mantra for U.S. based manufacturing companies was that if you want to stay in business, you better start outsourcing from China. Out of all of the low cost countries offering incentives to American companies to relocate production overseas, China has done the most to facilitate the rapid advancement of low cost sourcing to their country. 

The reason why the cost of manufacturing in China is less than it is in established industrialized countries like the U.S. is because the Chinese government was able to rig its currency, maintain unregulated factories, offer subsidies and tap into a deep well of cheap labor. It became impossible for American companies to ignore the financial benefits of moving manufacturing offshore, leaving thousands of American workers stranded without jobs. It also became common to hear about factories that had been in business for decades suddenly shuttering their doors. America, which was once known as a great industrial nation, was on the brink of losing its esteemed reputation for being producers of the best products money could buy. 

An intriguing trend is happening that promises to turn things around completely. U.S. companies that had heeded the call to reduce the cost of procurement drastically by moving production to China are now doing what’s called reverse offshoring. It turns out that as China matures as a growing industrialized nation, the cost and benefit of outsourcing there have gradually begun to shift. The three major concerns that are causing companies to reevaluate their true outsourcing cost savings are: government-sponsored IP theft, lags in product delivery time and rising wages. For instance, in 2000 the average Chinese worker was making just $0.58 per hour. Today they make around $4, and by 2015, estimates show that they’ll be making between $6 and $7 per hour on average. If a company’s main reason for relocating to China was to reduce labor costs, this savings is quickly becoming less of a factor. 

For these reasons, many companies, including such stalwarts as GE, Caterpillar, Dow Chemicals, Ford, Google and Apple have taken steps to move some or all of their production back to U.S. shores. Apparently, offshore manufacturing in China has already seen its heyday. With new manufacturing technologies like 3D printers coming into play, the cost of outsourcing overseas will no longer provide the type of savings as seen in the past. Instead, companies will reap more benefits by having their factories closer to home, where production can be closely monitored for quality control. Delivery times will also be much faster. American workers can be trained for new skills, continuing to earn a decent wage, while companies enjoy healthy profit margins. Made in the USA is once again being stamped on products with pride.