posted on 03 July 2016
from the Atlanta Fed
In the late 1970s, instances of offshoring - the relocation of a business process or operation abroad - accelerated among American manufacturers, as they pursued lower costs and higher profits by moving operations where labor and inputs were cheaper.
However, manufacturers are now increasingly looking at the possibility of reshoring - moving business operations back to the United States. The reshoring decision is a complex one, with only one certainty: it's not an easy one.
Discussions of reshoring versus offshoring abound, but let's consider a couple of studies with differing viewpoints. According to a report from A.T. Kearney, a global consulting group, the number of reshored U.S. jobs continued to lag behind the rate of offshoring for a fourth straight year in 2015. So although reshoring may be occurring, so does offshoring - and to a greater extent. However, a study by the Reshoring Initiative, whose mission is to help companies realize the total costs and risks of offshoring jobs and bring manufacturing jobs back to the United States, contends that the United States broke even in its 2015 reshoring efforts. Let's consider some of the dynamics at work.
Although the relative cost of labor was the primary driver that influenced companies' decisions to relocate manufacturing facilities abroad in the late 20th century, numerous factors - not always easily reconciled - also played a central role in the decision. Do these reasons hold up in today's environment? It depends on where you stand. Without a doubt, labor costs in common offshoring locations like China and India have risen over the years and continue to rise, but other factors are also at play. Below are some factors that either work against or support the notion of reshoring.
Advantages of reshoring
Drawbacks of reshoring
Clearly, numerous complex factors go into a firm's decision to reshore, maintain operations abroad, or even consider offshoring, and those factors will surely change as the global economy evolves.
About the Authors
Senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
Economic policy analysis specialist in the Atlanta Fed's New Orleans Branch
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