Posts Tagged ‘boston consulting group’

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Re-shoring. If the last decade or so has been characterised by off-shoring, then maybe we are set to enter a new era in which manufacturing returns to home markets, or, failing that, to countries much closer to home. Re-shoring: if it proves to be real, it may provide real, underlying strength to economic recovery. If it proves to be real, then real hope can be added to economic commentary; hope that this time recovery can last. And now we have evidence that it may indeed be happening, right now.

Sometimes predictions can become descriptions. You can forecast what the weather is going to be like. It is much easier and more credible, although perhaps less interesting, to describe what the weather is like. But Boston Consulting has moved from forecaster to describer in one very crucial area. A couple of years ago it made headlines for forecasting a new trend in manufacturing, as companies opt to make their products nearer to their home markets. Now it reckons it has evidence that this is actually happening.

Being one of the world’s largest consultancies, Boston Consulting’s surveys tend to be pretty meaningful. It asked executives at US companies with sales greater than $1 billion about their manufacturing plans. A year ago, 37 per cent said they “are planning to bring back production to the US from China or are actively considering it.” In its latest survey, the results of which were published this week, that ratio rose to 54 per cent.

So why, oh why? 43 per cent of respondents cited labour costs; 35 per cent proximity to customers; and 34 per cent product gave quality as their reason for considering re-shoring.

Michael Zinser, from the consultancy, said: “Companies are becoming more sophisticated in their understanding of all the factors that must be considered when deciding where to manufacture…When you look at the total cost of production for many goods, the US appears increasingly attractive.”

The Boston Consulting survey probably provides the most compelling evidence to date that re-shoring is occurring, but it is far from being the only evidence.

Back in July a survey from YouGov on behalf of Business Birmingham revealed that one in three companies that currently use overseas suppliers are planning to source more products in the UK. John Lewis recently said that it plans to increase the volume of made in the UK products by 15 per cent between now and 2015.

This development is good news in more ways than one; it may even be very good news in quite a profound way, but more of that in a moment.

But what about China? This is surely not such an encouraging development for the economy behind the Great Wall. Well maybe it isn’t, but maybe it actually is. What China needs is for wages to rise, and for it to see more growth on the back of rising demand. Its economy is simply out of balance. No one is predicting the end of Chinese manufacturing, merely that it may lose some of its dominance. If this loss occurs because wages in China have risen, creating more demand, this is good news for China, its suppliers and the companies that sell to its consumers. Okay, changes are never smooth. There will be short-term headaches caused by re-shoring, but the overall impact will be positive rather than negative.

But there is another perhaps more important implication.

Over the last few decades we have seen growing inequality, and company profits taking up a higher proportion of GDP, while wages take up a lower proportion. Some think this is good thing, and accuse those who criticise of being guilty of the politics of envy. They miss the point. You may or may not think inequality is morally justified, but it is clear that from an economic point of view it is inefficient. For an economy to grow it needs demand to rise, and in the long run this can only occur if the fruits of growth trickle down into wage packets. It is perhaps no coincidence that the golden age of economic growth occurred in the 25 years after the end of World War II, an era which saw much more equality than we see today.

It is possible that re-shoring is symptomatic of changes in the balance of power across the markets. For years we have seen what the IMF calls the globalisation of labour: the reward to capital rose, the reward to labour fell. The underlying cause of this may have been the one-off effect of millions of Chinese workers joining the globalised economy. As this one-off effect begins to ebb, we may see the globalisation of labour work in reverse.

See also: Wages set to rise – in emerging markets

© Investment & Business News 2013

Google Glass

Back in August 2001 the Boston Consulting Group issued a report with a pretty startling conclusion. It concerned what it sees as a great shift in manufacturing away from China, as many companies return their manufacturing plants to the US. And now it has emerged that Google is to make its goggles – products that may yet prove to be one of the most significant releases of the decade – in the US; in fact, in Silicon Valley. “China’s overwhelming manufacturing cost advantage over the US is shrinking fast. Within five years…Rising Chinese wages, higher U.S. productivity, weaker dollar, and other factors will virtually close the gap between the U.S. and China for many goods consumed in North America,” or so said Boston Consulting in August 2011.

See: Boston Consulting, Made in America again

In April 2012 Boston Consulting’s survey found: “More than a third of US based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it.” See: this Boston Consulting press release
Last November another Boston survey found that “more than 80 per cent of US consumers and, perhaps more surprisingly, more than 60 per cent of Chinese consumers say that they are willing to pay more for products labelled ‘Made in USA’ than for those labelled ‘Made in China’. See: this release

Now it has emerged that Google is planning to have its Project Glass – that’s those glasses which will enable wearers to access the Internet, and indeed film everything they are looking at, just about all the time – made in the US.

Then again, we are not exactly talking Foxconn scale manufacturing here. The glasses will sell for around $1,500 and Google is planning production in the low thousands. Given those facts, you can see the benefits of making the product in America.

Presumably the mark-up on manufacturing is so large that it makes little difference if a few dollars can be shaved off the cost by making the product in China. Presumably, Google also feels that for products as complex and important as its goggles, it needs to be close to the point of manufacture.

One can also presume that in due course the price will fall, fall some more and then fall again – so much that these glasses, or products of that type, will eventually sell for prices low enough to give them a mass market appeal. Only time will tell where the products will then be made.

©2013 Investment and Business News.

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