Transfer Pricing Associates

Reshoring Expertise

post Thursday March 14, 2013

Chemival plant

The widely known trend of offshoring various portions of a company’s value chain is not a recent revelation in global business. Even the major shifts of American business activities to China and Asia is not entirely new or groundbreaking. There is a slow reversal taking place that is resulting in a shift of business functions that are returning to the United States. The phenomenon known as reshoring is currently becoming more widespread as a growing number of US manufacturing companies are returning various processes and portions of the value chain to America.

Despite continued growth and expansion of the labor force and economy in China, declining growth rates have begun to become a reality. One factor that has contributed to this is increasing labor costs and growing transportation costs. An additional reason for slowed international business transactions in China is rising taxes, tariffs and costs of importing products to America. It was estimated by Mark Coopersmith of a California based company, that the difference between final costs of producing and assembling their product in America versus China was only 10% after transportation costs and customs duties and various fees.  A study conducted by Boston Consulting Group in April of 2012 reported that 37% of very large companies were planning or considering moving some production facilities back from China to America. Of the largest firms, a higher percentage were anticipating or working to reshore.

While this signals positive growth for US based companies, ultimately the movement is still in a fledgling state. Currently there are less than 100 firms that have begun some form of reshoring. Additionally, the companies that are bringing back portions of their operations are not even relocating the entire value chain. There is justified optimism for this movement, but there is still a large amount of business that is still being relocated in China.


Discussion: Do you think reshoring is going to be an effective use of resources? How quickly do you think US firms are going to adopt reshoring and use primarily US human resources?

Source:The Economist
Image source: Free Digital Photos

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