Amount of U.S. reshoring debated

Has the reshoring train left the station or not? According to the second annual U.S. Reshoring Index from global management consultants A.T. Kearney, the answer is a resounding “no.” In 2015, the index, at -115, indicates that reshoring of manufacturing activities to the U.S. has not kept up with offshoring. The index measured -30 in 2014. A positive number indicates net reshoring, while a negative value indicates net offshoring.

“Based on our data, we conclude that the reshoring phenomenon, once viewed by many as the leading edge of a decisive shift in global manufacturing, may actually have been just a one-off aberration [in 2011],” the consultancy stated. “Indeed, the 2015 data confirms that offshoring seems only to be gathering steam.”

To calculate the index, A.T. Kearney explained that it first looks at the import of manufactured goods from 14 offshore trading partners in Asia and then examines U.S. domestic gross output of manufactured goods. Next, it calculates the manufacturing import ratio, which is the quotient of dividing the first number by the second. The U.S. Reshoring Index is the year-over-year change in the manufacturing import ratio, expressed in basis points. 

The company pointed out two factors behind the precipitous drop in the index: lackluster domestic manufacturing growth and the resilience of the offshore manufacturing sector. 

The study indicates that:

• Surprisingly, some of the top sectors for reshoring from 2011 to 2015 are also sectors that have led the pack in further offshoring over that same period. 
• The recent increase of “nearshoring” to Mexico seems to indicate that, even if U.S. companies consider leaving Asia, they may choose to stop south of the border. 
• The forecasted strengthening of the dollar, the oil price slide, the tightening U.S. labor market in manufacturing and the Trans-Pacific Partnership, if ratified by the Congress, will likely further weaken the case for reshoring in 2016. 
• Although reshoring of manufacturing by U.S. companies is on the decline, non-U.S. companies, including Chinese companies, increasingly invest in establishing or expanding their manufacturing footprint in the U.S. The insatiable U.S. consumer market, the stable political and economic environment, and the benefit of tapping into America engineering skills and manufacturing know-how are the main draws.

Harry Moser, founder and president of the Reshoring Initiative, disagrees with these findings. The reshoring train is chugging right along, according to the industry-led group that is on a mission to prove offshoring is not always the best economical decision for companies.

In a rebuttal to the 2015 A.T. Kearney U.S. Reshoring Index, Moser agrees that foreign direct investment (FDI) is strong and was stronger in 2015 than reshoring, but FDI and reshoring are essentially the same phenomenon, just with parent-company headquarters in different countries. In both cases, the company decides it is more profitable to serve the U.S. market from a U.S.-based factory instead of from a foreign one, according to Moser.

He added that the list of items A.T. Kearney got wrong in its report include the claim that the number of reshoring cases per year is off 70 percent from 2013 to 2015. “Our database shows a smaller, 40 percent reduction, but reshoring still at about twice the 2011 level.” Also, Moser stated that the index does not actually measure reshoring, but essentially used the trend in imports to imply a trend in reshoring while the Reshoring Initiative measures reshoring directly. “Since the U.S. has one of the world’s fastest-growing economies now, it tends to import more.”

Moser’s full rebuttal can be found here. 

In response to the Reshoring Initiative’s rebuttal, Patrick Van den Bossche, A.T. Kearney partner and co-author of the 2015 Reshoring Index, stated, “We do not take a position for or against reshoring. We simply analyze publicly available government data to find out what actually happened, instead of relying on surveys.”

In addition, he referenced a post by Yossi Sheffi, director of the MIT Center for Transportation and Logistics, (www.linkedin.com/pulse/reviving-reshoring-debate-yossi-sheffi) as an “unbiased resource on the subject” and stated there’s a significant difference between a company’s intent to reshore and actually doing it. “Our approach results in a much more accurate reflection of the real reshoring story vs. surveys, which have proven repeatedly to be overly optimistic.”

In addition, Van den Bossche emphasized that the Reshoring Index does not include FDI, “because there are crucial differences in the underlying dynamics of reshoring and FDI, and we believe that the distinction needs to be maintained to get a true picture of decisions made by non-U.S. and U.S. companies.”

As an example, he stated The Brookings Institution estimates one in five U.S. manufacturing jobs is with a foreign-owned company. That equates to roughly 2.4 million jobs, up from 1.6 million in 2012. During that time, overall employment in U.S. manufacturing increased by a few percentage points while foreign-owned companies 
increased their manufacturing jobs by about 50 percent, “in part by buying U.S. companies and, increasingly, by expanding or building greenfield (“from the ground up”) manufacturing operations.”