Explained: Why American companies are repatriating their activities

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When Johnson & Johnson got rid of him, James Wyner was deeply hurt. His company, textile finisher Shawmut Corporation, had made a lot of money in the past through bilateral supply contracts. But in the mid-1990s, Johnson & Johnson decided to relocate their production of protective gear to Asia in an attempt to cut costs. As a result, Wyner had to lay off 250 employees as his plant in Massachusetts was suddenly empty. “We saw this company come out,” he told the business magazine. Fortune.

Johnson & Johnson is no exception. For decades, American companies have moved their production facilities overseas in search of cheaper materials and labor. Globalization has lowered costs and dramatically widened profit margins for many companies, with supply chains becoming the target of fierce competition as companies seek greater efficiency.

Systemic flaws?

As the pandemic rages on, people are now realizing how odd this has been. The rapid recovery of the US economy, in general, is causing problems for many domestic companies complaining of a severe shortage of raw materials and suppliers. Intermediate products are not available and microchips are extremely difficult to obtain. The coronavirus crisis shows that the desire for optimization of business leaders has its flaws.

Dysfunctional supply chains are becoming more of a headache, especially for small and medium-sized businesses that have little leverage in setting prices. Wherever goods are scarce, prices explode. Producer prices rose 8.6 percent in the United States in October alone, marking the largest monthly jump on record. Even the largest companies face huge hurdles that analysts say may not go away until 2024.

Consumer electronics giant Apple’s revenue fell $ 6 billion (€ 5.3 billion) in the third quarter. Sports equipment company Nike has reported production shutdowns in Vietnam, which means it will produce 160 million fewer shoes. Toy company Hasbro is complaining about rapidly rising transportation costs, as is meat substitute producer Beyond Meat, which has seen its shares drop significantly in recent months.

Towards the house

More and more companies are therefore reducing their costs and relocating their production to the United States. As early as 2019, when the trade crisis between China and the United States was in full swing, American companies sought to reduce their dependence on the Asian market. In March of this year, Intel announced that it would inject some $ 20 billion into two new semiconductor factories in Arizona. General Motors is relocating its battery production to Michigan, where a new hub for lithium-based products is expected to emerge soon. As steel prices have skyrocketed lately, producer US Steel has decided not to build its new $ 3 billion plant overseas, but in Alabama or Arkansas. Relocation activities are also being considered by Lockheed, General Electric and Thermo Fisher.

According to the industry organization Reshoring Initiative, some 1,800 US companies intend to relocate all or at least part of their operations this year. Some 220,000 new jobs are expected to be created in the United States. More than a decade ago, only 6,000 new jobs were created in the country through relocation activities.

The US administration aware of the problem

US President Joe Biden knows there is no time to waste. The White House has identified the current bottlenecks as a security risk. Shortly after his inauguration, Biden ordered a careful review of supply chain dependencies. Its infrastructure program to support domestic producers was finally passed by Congress a few days ago.

However, relocation expert Harry Moser believes the US administration needs to do even more. “Our manufacturing costs are about 15% higher than Germany’s and 40% higher than China’s,” said Moser, who ran a mid-sized engineering company for 22 years. The 53-year-old insisted that costs had to be reduced to increase competitiveness, perhaps through tax incentives or long-term investments in training skilled workers. “If we don’t fix the underlying problems, we won’t produce enough electronics and electric vehicles. [electric vehicles] to absorb our subsidized chips and batteries. “

Nonetheless, Moser believes the relocation trend will continue, boosting the domestic labor market. The Economic Policy Institute, a Washington-based think tank, estimates that every new job in manufacturing ultimately creates five to seven more jobs, especially in the consumer durables industry.

Lack of skilled labor

But many businesses can struggle to recruit employees. Many Americans have recently turned their backs on their businesses as they try to rethink their working lives. Many are no longer willing to take on just any job, especially assembly line jobs. In September alone, 4.4 million American workers quit their jobs – a nationwide trend that has been called “the big quit.”

But Wyner’s Shawmut Corporation is going against the trend. With significant government support for the production of face masks in the United States, the company was able to bring production overseas home. Wyner will soon have 300 employees, 50 more than in the 1990s. The materials it needs for production now come only from domestic suppliers. “This supply chain will not cross borders,” Wyner promised.

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