Manufacturing in North America – Returning to Former Glory?
In the 1970’s, North American manufacturing and process industries such as steel, rubber, automotive and fabrication facilities powered the economies of North America, in particular areas like Ontario and Michigan. Manufacturing since the 1970’s has dropped from over 20 percent of Canada’s Gross Domestic Product (GDP) to only 11 percent in 2013, or $162 billion. Mining, oil and gas account for 8 percent of Canada’s GDP despite it being the largest generator of Canada’s GDP.
Despite this decrease, the manufacturing industry shows signs of rebounding across North America. Reshoring, (the practice of corporations who re-establish business processes in their home country) has been credited with the resurgence of manufacturing. While many manufacturing jobs, business processes and revenues were sent to Asian countries like China and India in years past, a number of factors have led to the return of manufacturing to North America, including:
- Quality of materials, such as steel, rubber
- Cost of shipping assembled goods to North America
- Addressing compliance standards requirements (air quality, product safety regulatory requirements)
- Cost of travel to meet with offshore manufacturers to address any quality issues
- Quality control controls
Many of the manufacturing companies in the “new world order” of manufacturing in North America are not the huge corporations, but instead smaller, leaner contract manufacturers who specialize in a subset of products such as automotive parts, aerospace components and more. In 2013, manufacturing accounted for 47 percent of Research and Development funding, or $7.3 billion. The Canadian government has committed to support the growth of manufacturing in regions like Southern Ontario. Industries such as automotive, advanced manufacturing and shipbuilding will be given specific focus including tax rebate programs, apprenticeship initiatives and the government has promised to remove red tape and complexity of doing business in industries like beer production.
Manufacturing of electronics such as smartphones, heavy equipment and apparel have been offshored to Asia by many companies due to lower labour costs. Recent indicators show by 2015, labour costs in China will be on par in many industries, negating this Asian competitive advantage. Companies such as Google, Apple and other North American companies, even Asian companies such as Lenovo are returning manufacturing to the U.S. and Canada for a number of reasons including:
- Public relations, meaning the effort to win back customers who have dropped brands which have off-shored manufacturing
- Access to the North American market, including reduced shipping costs
- Availability of Research and Development tax rebates and public/private partnerships
- Decreased value of American dollar in the global currency market
- Steady and sometimes decreasing wages of U.S. workers as unions negotiate to concede on wages to protect jobs
North America has benefitted from U.S. and Canadian companies returning their manufacturing back home. European companies such as Airbus have invested in factories in places like Alabama. Mexico, the Philippines and other countries have benefitted from some manufacturing offshoring, however in some cases criminal violence reputation (in the case of Mexico) or lower capacity prevents companies from outsourcing there to the level of China or India.
In many cases, it isn’t company policy changes or logistics costs which are returning to North America, it is robots replacing factory workers. Where the cost of a robot providing consistent, safe, high volume product assembly costs the same on either side of the Pacific Ocean, North American manufacturers often win out as the closest-to-market provider. The “Millenial” generation is less interested in manufacturing jobs than their adults and their elders. Robots, which don’t need coffee breaks, can work throughout the night and meet high quality standards provide a compelling alternative to disinterested human labourers.
Analysts predict the North American onshoring trends to continue in the foreseeable future. Quality, consistency, cost and market accessibility are convincing companies in regions like Ontario to return their manufacturing. Chinese investors can capitalize on these trends by creating strategic relationships with Canadian businesses.