MFG.com recently surveyed US and European smaller manufacturing suppliers (typically "job shops"), and the findings in terms of re-shoring from March/April 2012 might be a surprise to some. Without question, it seems that North American suppliers in the manufacturing sector, at the least at the lower end of the revenue spectrum, are benefiting disproportionately from re-shoring efforts by their customers. In Europe, only 23.4% of respondents (out of a sample size of 154 in the study) suggested that their "company benefited this year from work that has been re-shored," which is defined as work that was previously sourced to a supplier in another country. In the US, the findings are inverted, with 40% of suppliers responding in the affirmative to benefiting from re-shoring initiatives. Put another way, the US number was 70% higher, a not-so-insignificant difference.
Mitch Free, MFG.com's CEO, had this to say about the discrepancy, as well as the impact on sourcing activity: "As the data illustrated, job shops in America seem to be benefiting from re-shoring more than their European counterparts. The challenge for job shops in Europe is that the Euro is strong, productivity is low and social costs are very high. In general, the cost of doing business is Europe out of line with the rest of the western world. Forming the EU was probably a mistake in hindsight, and it is going to take a long time to either unwind that or for the markets to adjust."
Spend Matters has a few views on how the differences in responses might be explained:
- European manufacturers outsourced less to China in the past decade, relying on Central and Eastern European suppliers where the cost basis of manufacturing has not shifted as much in recent years (e.g., in-country tax, VAT changes, currency and commodity cost volatility as components of total cost have played less of a role)
- Amidst continued economic concern in the EU, companies are being more cautious with new orders and sticking to current suppliers as volumes have remained steady or declined (versus shifting spend to new suppliers)
- As oil prices have increased in the past twelve months and transportation costs have risen a result, the costs of exporting from China to the US have risen disproportionately compared with the costs of European manufacturers re-shoring that was put on trains or shipped overland from Eastern/Central Europe previously