It's not like all those jobs at Wuxi are going to come back, but via Paul Thomas of Pharma Manufacturing, I see that the managing director of Boston Consulting Group thinks that China's cost advantage days are ending:
Knowledge@Wharton: What are some of the other factors that you think are making it possible for U.S. companies to become more competitive in manufacturing?
Sirkin: I think that we continue to focus on productivity of our work force. We are growing productivity quite nicely -- not at 8% a year, but at a substantial rate. U.S. companies are beginning to realize there are some problems with producing far away, that there are actual costs to that. I remember one CEO, when he worked out the economics, said the best thing for him was that his wife wouldn't bother him at two o'clock in the morning because he was on the phone. And he didn't have to fly 6,000 miles to go see his factory. That's an intangible, but it's real, and it points out the value of being close. When wages were 58 cents an hour when China entered the WTO, it was a very simple decision to go to China because [the wages] were so low. But those wages have gone up dramatically, and they continue to go up dramatically. Now it's not such a simple decision. Companies are beginning to rethink it. We expect over the next few years that there will be a lot of rethinking because manufacturing in the U.S. is becoming very competitive.
Knowledge@Wharton: Could you give examples of companies that are driving this renaissance in manufacturing? And what are some of the kinds of jobs that are coming back?
Sirkin: There are a lot of companies that are doing it. Again, I think we're still in the early stages. You see big companies like National Cash Register -- NCR -- that was manufacturing their ATMs in China for the U.S. and is now manufacturing in Columbus, Georgia. You see Ford adding jobs into its plants. I think they committed to 12,000 jobs. And you see companies like General Electric adding capacity to produce water heaters in their Louisville, Kentucky, plant. It's also smaller companies. So Farouk Systems, which makes hair dryers, has moved I think 1,500 jobs back from China to the U.S. You see Coleman, the manufacturer of water coolers, starting to build water coolers in the U.S. I can go on and on and on with the list. Every day we seem to find more and more companies that have made the decision.
They're realizing that the total costs of manufacturing in China -- with the wages being higher and all the other intangible issues -- are starting to make it just far more economic, far more logical to do this. Now some people may think that means factories will close in China. That's not going to happen. That's not going to happen because of the way the Chinese economy is structured. China's growing 8%, 10%, 12% a year. China actually needs to build more factories just to support the domestic demand. So it's not about companies making decisions to close a plant in China. Ironically, it's the fact that the Chinese economy is growing so rapidly that makes it possible for U.S. companies to very quickly build plants in the U.S. because they need to put another plant in their system. They can just convert the stuff they used to ship from China to the U.S. to domestic consumption in China, and then just build the plant in the United States. So ironically, China's success is what's causing this manufacturing renaissance.Well, I hope that's true.