Back to the USA: Manufacturing Makes a Comeback
On Bloomberg TV, CEO Lonnie Kane of U.S.-based women's clothing company Karen Kane talks about the company's decision to reduce the amount of clothing it produces in China from 50% to 20%, and increase its U.S. manufacturing from 50% to 80%.
Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable. When the company added in import duties and shipping costs for clothing produced in China, moving production back to the U.S. started to make sense economically, even with higher (but stable) labor costs in the U.S.
Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable. When the company added in import duties and shipping costs for clothing produced in China, moving production back to the U.S. started to make sense economically, even with higher (but stable) labor costs in the U.S.
Karen Kane is not the first company to move production back to the U.S. (Caterpillar, Wham-O and NCR are recent examples) and certainly won't be the last. Relocation of manufacturing back to the U.S. is a growing trend that reflects the reality that labor arbitrage is quickly disappearing for outsourcing manufacturing to China and other low-wage (but rapidly rising) countries.
As the Boston Consulting Group reported in May, "Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world. We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years."
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