Over on MetalMiner, my colleague Stuart Burns penned a quick summary exploring some of the opportunities and challenges surrounding GE's reshoring efforts (read Part 1 and Part 2). Stuart notes that it's not just high-value items such as aircraft turbines or imaging equipment that GE is focusing on driving production to North America for. Rather, "the surprise is that GE should look to move production of appliances, such as refrigerators and water heaters, back to the US." That GE is even considering such a move is surprising. But what will be more telling is whether the entire value chain (e.g., tier one component supplier and tier two parts manufacturers) also reshore production as a result.
What's driving GE's move? It's a combination of good old productivity improvements and reasonable wages (not to mention a government carrot) in US facilities. As Stuart observes, it's "firstly, the adoption of 'lean' manufacturing and design techniques that made [one] plant more efficient and took labor content out of production; secondly, the move to a two-tier workforce that means new employees are paid $13 per hour compared to $22 per hour [at the same plant] for those employed before 2005; and thirdly, $17 million in government incentives."
Ultimately, Spend Matters believes that if GE follows the course of many other global manufacturers, that history will analyze its reshoring efforts more as supply chain localization or regional sourcing and production as much as a shift away from markets such as China and India. Source locally, build locally and sell locally is a value chain trend we're likely to hear more and more about in the near future. And the pressure it puts on procurement departments to identify, qualify, manage and develop local suppliers in different markets will undoubtedly become one of the major focus areas in coming years.
Of course this says nothing for the fact that the US could be a great place for competitive export production as well. But until the Obama administration (or the next administration) calls off the EPA attack dogs, builds a sustainable energy and oil policy, and implements a sensible corporate tax policy (we'll take simply being in the middle of the pack vs. being at the top of it), it's our belief that reshoring will help with the trade deficit to some degree because we'll be buying less from abroad. But we won't necessarily be producing and selling more to the world -- as we should be.