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More than a third of large manufacturers are considering reshoring from China to the US

More than a third of US-based manufacturing executives at companies with sales greater than US$1 billion are planning to bring back production to the United States from China or are considering it, according to a new survey by The Boston Consulting Group (BCG).

Decision makers at 106 companies across a broad range of industries responded to the survey, which BCG conducted in late February 2012. Thirty-seven percent said they plan to reshore manufacturing operations or are “actively considering” it. That response rate rose to 48 percent among executives at companies with $10 billion or more in revenues—a third of the sample.

The top factors cited as driving future decisions on production locations: labor costs (57 percent), product quality (41 percent), ease of doing business (29 percent), and proximity to customers (28 percent). In addition, 92 percent said they believe that labour costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”

The results are consistent with earlier BCG findings on the changing economics that are starting to favour the manufacturing of certain goods in the US. In a recent report, US Manufacturing Nears the Tipping Point: Which Industries, Why, and How Much?, BCG predicted that improved US competitiveness and rising costs in China will put the US in a strong position to add 2 million to 3 million jobs in a range of industries and an estimated US$100 billion in annual output by the end of the decade.

“These survey findings confirm our own analysis and what we are hearing from major companies,” said Harold L. Sirkin, a BCG senior partner and coauthor of the firm’s Made in America, Again series, which began last year.

“Companies are realising that the economics of manufacturing are swinging in favor of the US, for goods to be sold both at home and to major export markets. This trend is likely to accelerate starting around 2015.”

China’s cost advantage is likely to shrink within the next few years to the point where companies should rethink where they produce certain goods, mainly those for sale in North America.Interest in shifting manufacturing to the US is particularly strong among companies in several sectors identified in BCG’s March report as nearing a “tipping point.

In these industry groups, China’s cost advantage is likely to shrink within the next few years to the point where companies should rethink where they produce certain goods, mainly those for sale in North America.

These tipping-point sectors are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

BCG predicts that production of 10 to 30 percent of US imports from China in these industries, which account for approximately 70 percent of goods that the US imports from that nation, could shift to the US before the end of the decade.

In the new survey, 67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the US.

“Not long ago, many companies regarded China as the low-cost default option for manufacturing,” observed Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas.

This survey shows that companies are coming to the conclusion surprisingly fast that the US is becoming more competitive when the total costs of manufacturing are accounted for.”

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