Is the Reshoring of U.S. Manufacturing a Myth?

There’s been a flurry of news reports suggesting that U.S. corporations are bringing overseas manufacturing back to the United States, notably from China. The reason for the reshoring: As labor costs rise in China and other emerging markets, the advantages of lower wages recede. But new research by Morris Cohen, a Wharton professor of operations and information management, and Hau L. Lee at Stanford, shows the reality is more complicated. There is actually little reshoring on a net basis in the U.S., while supply chain movements are crisscrossing more than ever. Even within the same company, one department might be outsourcing while another is reshoring. In this Knowledge@Wharton interview, Cohen outlines the key findings from of the study, “Global Supply Chain Benchmark Study: An Analysis of Sourcing and Re-structuring Decisions.”

An edited transcript of the conversation appears below.

Three Fundamental Questions

I’m engaged now in this very ambitious research project, a benchmarking research project with a consortium of other universities to address three fundamental questions about the sourcing of manufacturing on the global scale. We’re interested in first, what are companies doing? Where are they sourcing manufacturing? Are they changing the locations, the countries where they’re sourcing manufacturing? Years past, many went to China and low labor cost countries in Asia. And we’ve seen changes in relative labor costs. And there have been predictions that we’ll see an immense amount of reshoring. And yet, on the other hand, we see major restructuring going on.

There’s confusion as to what companies are doing.

Second is why a company is doing it — what are the main reasons for doing this? Is there some dominant reason, like labor costs or technology? Or does it depend on exactly where they’re going, who they are, what technology?

And the third, which is the hardest question to answer, is: What is going to be the impact of this in terms of jobs, in terms of economic efficiency, in terms of growth and market share? That is what we’re trying to address — to give it a sound empirical basis by benchmarking leading companies all over the world and asking them, based on the actual decisions that you have made in the last two or three years affecting the sourcing of manufacturing, tell us what you’ve done, why you did it and what the impact either was or is expected to be.

So, it’s been very gratifying. We initially did a pilot study in China where we got 50 companies to respond. And we’ve analyzed that data and we’re writing that up and it’s going to be distributed. We then created a consortium of seven leading universities with leading global supply chain scholars, people who work in this area who are all working together and we started the initial phase.

Originally published by Knowledge@Wharton, May 4, 2015

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