Manufacturing renaissance imminent in United States: study

In recent times, it seems the United States has lost its capacity and capability to "make things." The nation has been lurching toward a service economy, with any and all production shipped overseas -- especially to China. A new analysis suggests, however, that's all about to change. With it, however, comes some new challenges -- where will we get the skilled workers?

New research by The Boston Consulting Group (BCG) suggests that production of transportation goods such as vehicles and auto parts, electrical equipment including household appliances, and furniture will soon return to US shores. This return of manufacturing is starting to accelerate, and could create two to three million jobs, BCG predicts.

That's because wages in China are rising, and thus becoming less competitive on a global scale. Add transportation costs and vastly increased efficiency in US plants, and you have the making of a mass migration of manufacturing back to US shores. When higher U.S. productivity, the actual labor content of a product, shipping, and other factors are taken into account, the cost advantage of making many goods in China that are bound for sale in the U.S. will be marginal.

Shrinking wage gaps, as described by BCG, are part of the story. There’s also a technology side to the story. Automation is taking hold. US companies are also embracing analytics in a big way, measuring and constantly improving everything from delivery cycles to engineering tolerances. A promising new concept also coming out of US shops is “desktop manufacturing,” made possible by 3D printing. If 3D printing takes hold, mass production within the US could be far cheaper than producing and shipping products from overseas.

While the BCG report is good news, there may be a catch. There may not be enough skilled workers in this country to fill all the job openings created by this new migration. Even now, in the midst of a very sluggish economy, some companies are struggling to find enough people to support their production lines. As CBS News' Cynthia Bowers reported in June, there were 227,000 openings in manufacturing jobs. Some companies are unable to expand production due to shortages of skilled workers. "By the year 2012 it's estimated this country will be three million skilled workers short," she adds.

A looming labor shortage may seem paradoxical at a time of high unemployment. That's because manufacturers rely on technology-intensive production, making it more urgent to train and retrain current and prospective workers to make the transition.

BCG also expects growth in the manufacturing base of plastics and rubber products, machinery, fabricated metal products, and computers/electronics.

The BCG research builds on an initial analysis that BCG released in May and further developed in an August report titled Made in America, Again: Why Manufacturing Will Return to the U.S. With Chinese wages rising at 15 to 20 percent per year and the value of the yuan continuing to appreciate against the dollar, the report predicted that the once-enormous labor-cost gap between Chinese coastal provinces and certain lower-cost U.S. states will shrink to less than 40 percent by around 2015.

Not everyone will come back to US shores, BCG adds. Sectors such as apparel, footwear, and textiles will likely remain offshore because China and other low-wage nations will still enjoy large cost advantages. The biggest impact will be felt in sectors in which wages account for a relatively small portion of total production costs and in which logistics costs and other factors such as shipping time and distance are critical.

Recent moves by companies underscore the new manufacturing math. Ford, NCR, Master Lock, high-end cookware maker All-Clad Metalcrafters, audiovisual equipment maker Peerless Industries, Chesapeake Bay Candle, and irrigation control maker ET Water Systems are among the companies that have recently shifted manufacturing of some items from China to the U.S.

Electronics manufacturing services company AmFor Electronics cited delivery responsiveness and ease of design revisions as reasons for relocating wire-harness production and some final assembly from China and Mexico to Portland, Oregon.

This post was originally published on Smartplanet.com