Viewpoints: Case Closed: Reshoring is the Way to Go
By Harry Moser
Founder and President
In January, The Economist hosted a several-day online written debate that asked: "Do multinational corporations [MNCs] have a duty to maintain a strong presence in their home countries?"
I presented the affirmative case that they did, while the opposing point of view was presented by Jagdish Bhagwati, Professor of Economics and Law at Columbia University, Senior Fellow in International Economics at the Council on Foreign Relations and co-chair of the Eminent Persons Group on Developing Countries in the World Economy.
Bhagwati argued that a home country benefits no matter where the production or R&D is done, since the profits will come home. Therefore, globalization benefits everyone.
On the other hand, I argued that companies do have a duty to maintain a strong presence, at least in proportion to their sales, in the home country, because, for one, companies owe some responsibility to the society that nurtures and protects them.
But there are other reasons, too:
- Short and long-term profits are reduced by excessive offshoring. Many companies failed to recognize offshoring’s total cost. Rapidly rising offshore wages and oil prices as well as lower US energy costs are turning the tide in favor of reshoring.
- Offshoring negatively impacts the home country, and in turn, negatively affects resident shareholders, who make up about 80% of all shareholders.
- The law and military defense in the home country protect the interests, IP and other assets of the company best.
Furthermore, the US (and other mature home countries) are clearly not benefiting from globalization; the costs at least balance the benefits. Devastating unemployment, trade deficits, budget deficits, loss of manufacturing base, and loss of innovation and of self-sufficiency in military preparedness that resulted from excessive offshoring have overshadowed the benefits of cheaper products/services. For example, US manufacturing worker average wages fell from 2nd to 16th in the world rankings from 2000 to 2011.
For these reasons I insisted that MNCs make better-informed investment and sourcing decisions in regards to both offshore vs. domestic and long term vs. short term choices.
Readers voted in The Economist debate, which is fully summarized at http://tinyurl.com/mfgdebate. Voting trends were exciting: The argument in favor of a duty to home countries held a first-day lead at 58%, fell to 45% to 46% on days four through seven, and then surged to close at 54%, despite the clear commitment of Economist readers to globalization.
I attribute the victory to the understanding that offshoring has exceeded the interests of company and country, to the teamwork by the many who helped with my arguments and to a "get out the vote" effort by small manufacturers, manufacturing employees, machine tool makers and distributors, trade and policy associations, labor (AFL-CIO and USW), progressive and fair trade groups, Made in USA companies, and Reshoring Initiative supporters. Thank you to all!
In conclusion, I offer a number of points for consideration. For one, the US can and should do more to earn the loyalty and duty of its MNCs. The US does a poor job of being competitive in K-12 education, skills training, corporate tax rates, and other areas that would motivate more companies to invest here. Second, about 60% of companies compare only labor rates, purchase price or landed cost, instead of total cost, and thus ignore 20% or more of the cost when they offshore to supply the US market. These companies can improve benefits to both shareholders and country if they use the Reshoring Initiative’s Total Cost of Ownership (TCO) Estimator to make better sourcing decisions.
About 50,000 manufacturing jobs have been reshored since January 2010. The Initiative is working to increase this number and is available to help companies help themselves and their country. The Initiative is supported by 47 sponsors, most of whom are our industry’s leading technology suppliers and trade and professional associations, including SME, a Platinum sponsor. My sincere thanks to everyone supporting the Initiative and working to make US manufacturing more competitive! ME
This article was first published in the May 2013 edition of Manufacturing Engineering magazine. Click here for PDF.