IN A 1940 NOVEL OF THE SAME NAME, THOMAS WOLFE
declared, “You can’t go home again,” but some companies are
willing to give it a try. During the past year, we’ve heard of
a number of companies that are rethinking their geographic
manufacturing or distribution strategy. In what appears to be
at least a minor trend, manufacturers are considering “
reshoring”—bringing production back home—as well as “
nearshoring”—bringing it closer to home, particularly from China. One
of the most socially correct reasons for doing so has been the
prevalence of worker abuse. Mistreatment of workers has been
fairly common in Asia, and events such as the 2013 Bangladesh
tragedy, when an overcrowded, unsafe, out-of-code building collapsed, killing over 1,100
garment workers, have made corporations and
consumers much more aware of the working
conditions of many Asian wage earners.
A Boston Consulting Group study released
last year showed that 36 percent of the respondents were, or were thinking about, moving
production back to the U.S. from China.
There are several good reasons for doing so
other than the concerns about workers. Wages
there are rising, the political climate is becoming more uncertain, quality is dropping, intellectual property is becoming more difficult to protect, Chinese
companies are lagging in technology, transit times are long and
erratic, and managing a far-flung international supply chain has
never been easy, under any circumstances.
Other companies are looking at nearshoring, with Mexico
becoming a very popular destination. As for what makes Mexico
so appealing, it’s partly the prospect of low labor costs. By 2020,
the hourly wage in China will be $7.60, compared with $30 in
this country; while in Mexico, it will be only $5.20. It’s not just
a matter of low labor costs, however; there are other compelling
reasons to locate in Mexico. The economic climate is improving,
as is the transportation infrastructure, and Mexico is close to
home. That proximity means operations there are considerably
easier to manage than their Asian counterparts, and companies
locating there are sure to see service advantages over the Asian
locations. The elephant in the room, of course, is security, but
Mexico has taken major steps to bolster crime prevention efforts
and law enforcement.
The entire issue is a “Catch 22” for many of the companies that
BY CLIFFORD F. LYNCH fastlane
Can you go home again?
have outsourced to Asia with the primary
goal of reducing labor costs. In many cases,
these low labor costs have resulted from
human rights abuses. It is becoming increasingly difficult for companies in this country
to stick their heads in the sand on this issue,
but as responsible companies try to remedy
the situation in their Asian facilities, they
will find themselves paying more for labor,
putting them at a competitive disadvantage.
They will be forced to seek other alternatives, with reshoring and/
or nearshoring the most
obvious options.
Moving facilities back
to the U.S. could provide
a significant boost to the
economy, and relocations
to close-by countries like
While I believe the trend will continue,
movement will be slow. The relationship
between U.S. and Chinese labor costs is not
appreciably different than it was when the
work was offshored, and to simply reverse
those decisions could be very expensive. I
believe the big winner in all this may be
Mexico. It will be a great compromise for
those companies that want to escape Asia but
are not quite ready to absorb the high cost of
homegrown labor.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author
of Logistics Outsourcing – A Management Guide and co-author of
The Role of Transportation in the Supply Chain. He can be reached
at cliff@cflynch.com.
