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Foreign Factories Come Back Home

The big draws for making things in the U.S.: rising wages abroad, cheap energy here.

From Kiplinger’s Personal Finance, March 2013

Once again, Apple is in the vanguard of what many experts expect to be a major trend. This time, however, it's not what the company produces that's creating the buzz, but where. Apple has announced that, starting this year, it will manufacture some Mac computers in the U.S. rather than in Asia, where most of the company's goods are produced. The move works out to about a $100 million investment, and Apple watchers say it could create 200 jobs — a relatively small contribution "but not trivial," says Harvard Business School professor Gary Pisano, author of Producing Prosperity: Why America Needs a Manufacturing Renaissance. "Apple is a role model. If it puts plants back in the U.S., it could change the way other companies think."

See Also: Manufacturing Bouncing Back

Skeptics abound, but anecdotal evidence already points to a nascent trend that has come to be known as "reshoring" or "insourcing." American companies ranging from Otis Elevator to Frisbee maker Wham-O have repatriated at least some manufacturing to the U.S. Last year, General Electric revitalized two factories in Louisville, Ky., to produce water heaters that had been made in China and refrigerators formerly made in Mexico. As part of a $1 billion investment, GE will also begin making washers and dryers in the U.S. that are not currently made here, and it will add more refrigerators and dishwashers to the U.S.-made mix. In a study coauthored by Michigan State University, 40% of U.S. manufacturers surveyed reported a reshoring trend in their industries.

Foreign companies are setting up shop here, too. Hong Kong–based PC manufacturer Lenovo is starting a U.S. production line in Whitsett, N.C., to make ThinkPad tablets and other products. Siemens, the German conglomerate, is exporting gas turbines from Charlotte, N.C.

There are good reasons to move home. Wages are rising in China, and high oil prices have boosted shipping costs. Offshoring companies have also encountered hidden costs resulting from long lead times, quality-control issues, and the separation of production from design and engineering teams. Another attraction here: The cost of factory-powering natural gas — also a key component in producing chemicals — is far less than the going rate overseas.

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Analysts at Boston Consulting Group forecast a manufacturing renaissance here in full swing by 2020. Reshored production coupled with a pickup in exports could create 2.5 million to five million jobs in manufacturing and related services by 2020. "It's hard to know how much and how fast, but we're conservative on the jobs numbers," says BCG's Hal Sirkin.

Don't look for many old-style factory jobs requiring a strong back and good hand-eye coordination. "Manufacturing is becoming knowledge work," says Harvard's Pisano. Skilled workers in short supply include welders, machinists and industrial machinery mechanics, says BCG.

Investors seeking to profit from the resurgence can explore shares in manufacturers such as Ford (symbol F, $14) and Caterpillar (CAT, $95), suppliers such as Fastenal (FAST, $48) and transportation companies such as CSX (CSX, $21). Get broad exposure through exchange-traded fund Industrial Select Sector SPDR (XLI, $39).

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