Made in America, Again
Why Manufacturing Will Return to the U.S.

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Made in America, Again
Why Manufacturing Will Return to the U.S.

Harold L. Sirkin, Michael Zinser, and Douglas Hohner
August 2011

AT A GLANCE
China’s overwhelming manufacturing cost advantage over the U.S. is shrinking fast.
Within five years, a Boston Consulting Group analysis concludes, rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North
America.
LOOK AT TOTAL COSTS
Companies should undertake a rigorous, product-by-product analysis of their global supply networks that fully accounts for total costs, rather than just factory wages.
For many products sold in North America, the U.S. will become a more attractive manufacturing option.
REASSESS YOUR CHINA STRATEGY
For many products that have a high labor content and are destined for Asian markets, manufacturing in China will remain the best choice because of technological leadership or economies of scale. But China should no longer be treated as the default option.

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Made in America, Again

F

or more than a decade, deciding where to build a manufacturing plant to supply the world was simple for many companies. With its seemingly limitless supply of low-cost labor and an enormous, rapidly developing domestic market, an artificially low currency, and significant government incentives to attract foreign investment, China was the clear choice.
Now, however, a combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market. Meanwhile, the U.S., with an increasingly flexible workforce and a resilient corporate sector, is becoming more attractive as a place to manufacture many goods consumed on this continent.
An analysis by The Boston Consulting Group concludes that, by sometime around
2015—for many goods destined for North American consumers—manufacturing in some parts of the U.S. will be just as economical as manufacturing in China. The key reasons for this shift include the following:

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Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over low-cost states in the U.S., from 55 percent today to 39 percent in 2015, when adjusted for the higher productivity of U.S. workers. Because labor accounts for a small portion of a product’s manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products.

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For many goods, when transportation, duties, supply chain risks, industrial real estate, and other costs are fully accounted for, the cost savings of manufacturing in China rather than in some U.S. states will become minimal within the next five years.

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Automation and other measures to improve productivity in China won’t be enough to preserve the country’s cost advantage. Indeed, they will undercut the primary attraction of outsourcing to China—access to low-cost labor.

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Given rising income levels in China and the rest of developing Asia, demand for goods in the region will increase rapidly. Multinational companies are likely