The phenomenon of relocating manufacturing activities to the United States (reshoring) has garnered a fair amount of coverage in US and Canadian media in recent months.
Several studies indicate that this trend, though still in its early stages, is expected to become increasingly common in the next few years. PricewaterhouseCoopers – PwC (2012) lists several reasons why the US is becoming an increasingly attractive manufacturing venue. These include:
- Growing transportation and energy costs
- A lower US dollar
- Consistently high US demand
- Higher labour costs in China
- Access to a US talent pool
- Tighter access to credit, reduced foreign supply chain and inventory
According to an article by André Dubuc published in La Presse (June 2013), half a million manufacturing jobs have been created in the US since 2010, largely in Kentucky, Tennessee, Texas and California. About a hundred US companies have transferred some of their production from China to the US, such as GE, Ford, Airbus, Caterpillar, Google – and soon – Apple. According to Louis J. Duhamel, Partner, Consulting Corporate Strategy at Deloitte, and leader of The future of Quebec’s manufacturing industry: Working together for a better future roadshow, reindustrialization will lead to the creation of two to three million direct and indirect jobs in the US over the next decade.
Duhamel believes that Canada could appropriate 10% of the total value of goods production repatriated from Asia, equivalent to $50 B in 10 years. Greater Montréal is well positioned to capture some of this future investment. Notes KPMG (2012), metropolitan Montréal boasts the most competitive total operating costs out of the 20 largest urban centres in Canada and the US (all sectors combined). This cost advantage is due in large part to the incentives offered by the provincial and federal governments, including R&D tax credits. Québec’s largest city has the second-lowest overall tax burden among major North American regions (KPMG, 2012).
The Boston Consulting Group – BCG (2012) lists seven activity sectors where production of goods would be cheaper in the US than in China this decade: computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metals, plastics and rubber and transportation goods.
Ultimately, the regions that will draw manufacturers back to North America will be those that can create winning conditions for investment. Québec appears on track to do this with the March 2013 announcement of a future industrial policy for the province. The government plans to develop a more competitive and greener manufacturing sector, focusing on strategic green technology, clean energy and electric transportation. We will give you more information on this policy once it has been officially launched.
Mathieu Lefort, Senior Analyst, Direction of Economic Studies, Montréal International