Beyond reshoring: Why restarting plants and hiring workers are just as crucial
PE: You've suggested that manufacturing had been neglected for a decade. It now seems to be making a comeback. What's driving this manufacturing renaissance, and what needs to happen to keep it growing?
Van den Bossche: Back in 2001, when China joined the WTO, the cost proposition of that nation, with an abundance of workers, low-cost labor, attractive government incentives, and a huge potential domestic market, was a big driver for companies closing their U.S.-based operations and moving eastward. In the eight years following, exports from China to the U.S. virtually tripled. During that period, according to the Organization for Economic Co-operation and Development, while companies have been investing in efficient, state-of-the-art technology for their overseas manufacturing facilities, their existing U.S. plants have not benefited from similar capital flows into new or upgraded equipment and, as a result, the U.S. is sitting on a relatively old machine base.
Similarly, the domestic U.S. manufacturing workforce is also aging. According to the Economics and Statistics Administration, the average age of this workforce is close to 45 and it’s estimated that 10% of the current manufacturing workforce will retire in the next 3 to 5 years, leaving behind a serious skills gap.
Nonetheless, manufacturing in many ways has always remained the cornerstone of the U.S. economy and, globally, the U.S. is also still the largest manufacturing economy, producing more than 20% of all manufactured products across the globe. So when the trends listed in your earlier question started to emerge, companies figured that “coming back” would be relatively easy and several big-name manufacturers announced their intent to return.
But we’re not seeing the big return just yet. In 2012 industrial production and capacity utilization started off the year strong, fell over the summer, started to pick up in the fall, but then fell more recently, back to early 2012 levels and, overall, industrial production still remains well below its pre-recession levels. So, even though the intent is there, U.S. manufacturing companies will need to work hard to overcome the constraints they face due to the aging assets and workers.
Aging assets will require significant commitment of capital to build new plants or make targeted investments to extend the life, and increase the productivity, of existing assets. The aging workforce will force companies to think more strategically about recruiting, training, and retaining talent. Government may also need to play a part by initiating or maintaining programs that proactively drive the “Make it in America” agenda through the provision of investment incentives, appropriate education, and other measures.