Thursday, December 13, 2012

I don't think medchem will reshore to the US. Do you?

Credit: Boston Consulting Group
I've been watching the boomlet in articles this past year about the "reshoring" of manufacturing back from Asia to the United States with some interest. The latest in this trend is Charles Fishman's article in The Atlantic Monthly about General Electric bringing back some appliance manufacturing to its facility in Kentucky. There has been a bit of hubbub about Apple's commitment to spend $100 million to built an assembly line in the US. (The Financial Times notes that it is not much, compared to the billions that it's spent on its facilities at Foxconn City.) Also, Felix Salmon points out that a lot of the jobs coming back are paying $10-15/hr, as opposed to the $20+/hr that most folks imagine.

I think this is business and the media chasing "hot trends", as opposed to looking at the long-term picture. [I've made a ten-year dinner bet with an old high school classmate about the share of US manufacturing as a percentage of US GDP. He says it's going to be higher in 2022 than in 2012; I say it's going to be lower.]

So a couple of new-ish things to comment on:
  • There is a lot of talk about the an American manufacturing renaissance due to hydraulic fracturing, all the natural gas/oil that is going to be produced and the cheap energy that's going to result. I think that's really real and why serious federal regulation of either 1) hydraulic fracturing or 2) carbon emissions will not happen during President Obama's 2nd term. There are just too many oxen to gore.
  • Also, Ben Bernanke has just announced that the Fed will keep rates low for the foreseeable future until unemployment falls below 6.5% to inflation goes above 2.5%. This is a pretty bold step* and shows their commitment to lowering unemployment as much as possible. So it won't be hard for companies to borrow money for the foreseeable future. 
So here's my question: we all saw pharmaceutical manufacturing go overseas in the last 20 years, shortly followed by a lot of basic medicinal chemistry R&D. I suspect that some specialty chemical manufacturing will indeed see increases over the next ten years; to right is a graph from a Boston Consulting Group report that shows that chemicals might be on the cusp of returning to the US.** Is there any evidence that medicinal chemistry R&D is "reshoring"?

I don't see it at all, but I'd be interested in hearing a contrarian opinion. Readers?

UPDATE: The ever-awesome Rich Apodaca has some thoughts on how it could happen.

*and a big screw-you to net savers. That part is frustrating, if understandable. 
** That's probably driven by hydraulic fracturing more than anything else.

6 comments:

  1. Maybe not traditional MedChem R&D, but Codexis recently re-shored its pharma R&D from Singapore (~40 positions). Of course, they laid off 130+ in the States simultaneously, but I suppose it would have been 170+ otherwise...

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  2. My first thought - ten years is a long time. A lot can happen, including Black Swans.

    Still, if reshoring of pharma positions were to happen, it's interesting to speculate about what the driver might be.

    I recently read an article suggesting that factors unrelated to production costs might be worth considering - specifically the way that outsourcing tends to rapidly transfer know-how and expertise outside of an organization, and in the process create terrifying entities known as "competitors":

    http://www.asymco.com/2012/12/07/the-real-threat-that-samsung-poses-to-apple/

    Note that the damage being done has nothing to do with ripping off intellectual property. Rather, it has to do with the outsourcee replicating its benefactor's business process.

    According to this line of thought, Pharma's recent outsourcing frenzy is nursing to health the very companies that will eat their lunch at some later point. Say, in ten years time?

    One would have to imagine that more than one or two folks in decision-making capacities would see this starting to happen and take action to reverse course.

    That might be one scenario for how reshorting could start to happen within the next ten years, but I've seen no evidence for it yet.

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  3. Ummm, do BCG people advise their clients to bring business home?

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  4. Reshoring MedChem research is already being done...it's called organic grad school/postdoc.

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  5. Lilly has been replacing overseas contractors with 'in-sourced' medicinal chemistry contractors on-site in US and UK for the last couple of years.

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  6. @Anon 9:12AM -
    Lilly has been demoting some of their few current US employees to contractor status with lower pay.

    There fixed that for ya.

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