"Labor arbitrage—taking advantage of lower wages abroad, especially in poor countries—has never been the only force pushing multinationals to locate offshore, but it has certainly played a big part. Now, however, as emerging economies boom, wages there are rising. Pay for factory workers in China, for example, soared by 69% between 2005 and 2010. So the gains from labor arbitrage are starting to shrink, in some cases to the point of irrelevance, according to a new study by Boston Consulting Group (BCG).
“Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,” says BCG's Hal Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.
“Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,” says BCG's Hal Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.
BCG lists several examples of companies that have already brought plants and jobs back to America.
1. Caterpillar, a maker of vehicles that dig, pull or plough, is shifting some of its excavator production from abroad to Texas.
2. Sauder, an American furniture-maker, is moving production back home from low-wage countries.
3. NCR has returned production of cash machines to Georgia (the American state, not the country that is occasionally invaded by Russia).
4. Wham-O last year restored half of its Frisbee and Hula Hoop production to America from China and Mexico."
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