October 15, 2012
For some companies, one reason to return stateside is cost. According to a study by The Hackett Group, a management consultancy, manufacturing in China has been losing its cost edge. Labor is still cheaper, but the price of goods is also affected by other factors. For instance, there is the “landed cost,” to consider, which includes every expense to not only make products but also to get them to where they need to be.
Meanwhile, wages are creeping up in China as employers try to avoid the type of worker unrest that has plagued Foxconn, which makes Apple products. At the same time, U.S. wages have come down. Add the surging cost of fuel of shipping goods from Asia and other distant locations, the complexity of global logistics and other considerations, and what was a 35 percent price advantage in 2005 will, according to Hackett, drop to 16 percent next year. That’s the level at which companies question whether outsourcing even makes sense.
Raw costs aren’t the only consideration. Lenovo’s rational for putting a factory in the U.S. isn’t a sudden price break. In fact, the company will assemble hundreds of thousands, not millions, of units in North Carolina. Factories in China, Europe and Mexico aren’t going away.
Lenovo counts on two benefits from U.S. facilities, as director of global supply chain communications Mark Stanton explained to CNET’s Brooke Crothers. One is speed to market, including faster assembly of custom orders.
The other is the perception of customers, many of whom might prefer to see a “made in the U.S.A.” label on the company’s products. Lenovo competitors Apple and Hewlett-Packard outsource manufacturing overseas, which ironically could make the Chinese company look more American than the domestic ones.
Locating factories in the U.S. and playing up the local connection is an approach Japanese auto companies smartly used to help build their American market share. As companies from China and elsewhere in Asia compete to provide more than cheap commodity goods in the U.S., opening factories here might become a more common tactic.