Don’t Lose Your Shirt: American Apathy to Reshoring

Made in USA Eyematrix/Adobe Stock

Spend Matters welcomes this guest post from Oliver Everhard, an associate with GEP.

For decades, conventional wisdom has said that anything you can manufacture offshore — in particular, less skill-intensive products like clothing — will end up costing your company less.

From a cost perspective alone, this is likely true. While Chinese wages have gone up exponentially in recent years, and while shipping overseas is indeed a major investment of time and money, the stark difference in domestic labor costs versus those abroad make it difficult to pitch domestic manufacturing as a path to savings.

Yet “reshoring” — the process of bringing manufacturing back into the United States — has become an increasingly popular option for American companies. Per the Boston Consulting Group and the Economist, the relative savings from manufacturing in China versus domestic production are now only in the range of 10%. Factoring in QA issues that are part and parcel with offshoring and the good PR that can come with the perception of contributing to the American job pool, the case for manufacturing at home becomes more palatable.

That good PR, in fact, is something that many local organizations promoting domestic production have touched on heavily. The “Made in America Movement,” an activist group that provides a directory of companies that make their goods domestically, argues a trend of “increased consumer demand for products made in America.”

Indeed, per Consumer Reports, “84% of Americans believe that U.S.-made products are reliable,” and price no object, many might indeed make the choice to buy something made in the USA.

Of course, price is always an object. China is not growing more expensive in a vacuum; countries like Bangladesh have been more than willing to do light manufacturing at a fraction of China’s labor rates. While Apple likely won’t be making its next iPhone outside of China, clothing companies — particularly lower-cost ones like H&M, J.C. Penney, and Walmart — have been doing so with many of their products for years, ethical and safety concerns notwithstanding.

American Apparel is a prime example of the power of this trend. Pitched on a platform of well-paid domestic manufacturing jobs as a reason to buy its clothing, the company stopped turning a profit in 2009 and went bankrupt for the second time at the end of 2016. As of April 2017, all of its retail locations have been shuttered and its branding and IP have been acquired by Gildan Activewear, which has plans to reintroduce the brand at big-box retailers like K-Mart, with clothing manufactured in Central America.

That said, not all goods share the same trends as consumer retail. For example, 76% of Americans do attempt to buy food made in the United States. Yet the next two categories, cars and motorcycles and large appliances, come in at only 57% and 55% of Americans taking significant pains to buy local, respectively. Also, keep in mind that these categories encompass some of the most expensive and infrequent purchases that Americans make.

As goods become less expensive, the “Made in America” label seems to carry even less weight. A 2006 study from the University of Michigan encapsulates this idea perfectly. Given the choice between socks labeled with a “Good Working Conditions” label and those without, only 24% chose the former at a 30% markup, and only half chose them with zero markup. Aside from the food we eat (and might get sick from), for the t-shirts and socks we wouldn’t call significant purchases, even the “fairly compensated labor” label isn’t enough to sway most customers from cheaper prices, let alone the “Made in America” one.

There’s the rub: While the rise of manufacturing technology and its displacement of labor may make the cost increase from domestic manufacturing negligible, American consumers just don’t seem to care that much about the label for all but their most important purchases.

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Voices (2)

  1. Rosemary Coates, Executive Director:

    There are other aspects to reshoring that you have not considered. At the Reshoring Institute we recommend taking the total cost of ownership (TCO) as a starting point. Then, the manufacturer must consider goodwill or the value of the “Made in America” label. Our experience is that American consumers are willing to pay 12-15% more for products made here. In addition, you must consider the positive and free publicity you get from bringing jobs home and the magnifier effect these jobs have on communities. For every manufacturing job created, there is a 1.4x positive economic effect on the community. And there is much more.

    1. David Tower:

      Rosemary, are the low cost of energy and less regulatory burdens being promoted by President Trump having any impact…IE: creating an environment that’s more business friendly getting more traction and interest???

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