For years, American businesses set up their manufacturing plants in foreign countries to take advantage of inexpensive labor. Recent changes to the United States economy are turning this trend around, however, and the U.S. is becoming an increasingly attractive option for manufacturing. It’s not just American companies that are returning to the U.S. for these purposes: foreign businesses are offshoring their operations to the United States, too.
One major reason for the sudden upsurge in U.S. manufacturing is the boom in shale gas production, which is helping to drop energy costs across the country. This affordable fuel helps to make the U.S. an attractive option for commercial manufacturing. Many companies that chose to run their manufacturing operations in other countries are finding that it can actually be cheaper to keep those operations in the U.S. Moreover, European companies are taking advantage of cheap gas prices and an available labor pool since natural gas in the U.S. costs roughly a quarter of the European price.
Although many companies point to labor costs as a good reason to outsource manufacturing jobs, the truth is that domestic operations are often the most cost-effective choice. Labor costs are rising in countries like China, where wages have grown a staggering 500 percent in the past 13 years, and are forecasted to continue to grow by 18 percent each year. Compare this to American wages, which have remained steady in certain areas over the same time period.
When looking at the total cost of ownership for any operation, many businesses are discovering that the expenses of energy consumption, delivery, freight, packaging, and other production costs are actually higher when the manufacturing is completed overseas. When GE moved its production from China to Kentucky, it experienced a 20 percent decrease in expenses, and other companies are seeing similar results.
This “manufacturing renaissance” is good news for businesses who can reduce their expenses and streamline their operations by keeping them on domestic soil. It’s also good news for American workers, who can begin to fill these positions, which will stimulate the economy and help increase demand for other goods and services to support the new manufacturing operations.
Crestmark works as a lender to a variety of manufacturing related businesses. For details on how we may be able to provide financing for your business based on your accounts receivable, inventory and machinery/equipment, contact one of our lending experts today!