Overseas investment in U.S. manufacturing predicted to rise

October 3, 2012


U.S. manufacturing is set for a wave of foreign investment before the end of the decade, with industry analysts believing that global competitors will need to have an American manufacturing strategy to compete domestically.

According to Bloomberg, the slowing down of the global economy is leading to an evolution in U.S. industry, with a number of overseas firms looking to take advantage of manufacturing talent across the country. Apart from automobile manufacturers, who have long seen the value in building cars in America, foreign manufacturing firms involved in construction and metal products are looking to move their operations to a country that has enough talent to actually produce goods and an onshoring business strategy that has been welcomed by economists.

"The foreign companies are here primarily to tap the lucrative U.S. market," wrote Harold Sirkin, an industry analyst and business consultant. "Remember, the U.S. economy may be wounded, but we’re a wounded giant – and the wounds will heal. International companies have always considered U.S. manufacturing a good bet, especially for the U.S. market."

Figure show that manufacturing costs overseas have soared even as the global economy slows and consumer demand remains tepid for some products. Sirkin estimates that manufacturing in France and Germany is 15 percent more expensive than the U.S., while building products in Italy can be 23 percent higher than in America.

Costs in China have risen dramatically in recent months, even as their industry continues to contract, while Japanese manufacturers are reportedly is 21 percent higher than the U.S. Even the UK, once a bedrock of the manufacturing industry, can be 8 percent more costly, especially relevant when considering the high productivity and lower labor costs of American workers.

Research done by Tobias Schoenherr, a supply chain authority at Michigan State University, demonstrated that not only were overseas firms looking to plant their feet on American soil, but that a large number of U.S. manufacturers were bringing their international operations back to the country. His study revealed that 40 percent of manufacturers were in the process of moving back, or were considering coming home, citing increased labor costs, a drop in product quality by offshore workers and transportation difficulties as some of the reasons why they were moving.

"Going overseas is not the panacea that it was thought of just a decade or so ago," Schoenherr said. "Companies have realized the challenges and thus are moving back to the United States."