What's in it for Canada?
Production and jobs are returning to North America, but benefits to Canada will be limited.
Onshoring, reshoring, inshoring, backshoring: all terms coined to describe a phenomenon that’s bringing US manufacturing jobs back from places such as China where low-cost advantages are quickly diminishing.
Whatever one chooses to call it – let’s settle on “onshoring” – it’s giving manufacturers a much needed lift as rising wages in emerging markets, a high-value renmbini and volatile transportation costs make China a less attractive place to run lower-cost production.
Offshoring – the process of substituting foreign factors of production for domestic ones to produce goods and services abroad and then import them – is slowing down. According to a report by TD economist Michael Dolga, Offshoring, Onshoring and the rebirth of American manufacturing, an upswing in onshoring activity accounts for about 25% of the 200,000 US manufacturing jobs created since 2011.
The report goes on to say rising capital-intensity across the manufacturing sector is also gradually eroding the benefits of producing goods abroad.
It’s happening for a number of reasons. More companies are embracing the domestic benefits in the US thanks to factors such as intellectual property protection, tighter supply chains, mass customization and an abundance of natural gas that’s lowering energy costs.
“The manufacturing sector is ripe for revival as changing global conditions, domestic advantages and productivity gains are making North American manufacturing more attractive, which will hinge on increasing competitive advantage in key industries,” writes Dolga.
Another report by the Boston Consulting Group, Made in America again: why manufacturing will return to the US, suggests American manufacturing is headed for a renaissance.
By as early as 2015, it will become more cost effective to make goods in the US, the report says, estimating up to 30% of the goods imported from China will shift production to America. That would reduce the US unemployment rate by 2% and lower the nonoil-related merchandise deficit by up to 35%.
So what does this all mean for Canada?
Nigel Southway, chair of the Toronto chapter at the Society of Manufacturing Engineers (SME), says onshoring benefits for Canada aren’t rosy, but he’s not waving the white flag. Prosperity will depend on getting the government to support manufacturing and address the over-valued dollar
“If you’re a business owner with a plant in the US and one here, where are you going to move production? It’s probably not here,” he says. “The dollar is a huge problem for some people.”
Southway also heads SME’s Take Back Manufacturing (TBM) initiative, a campaign launched in mid-2011 to help manufacturers rebalance what’s made offshore and what’s made here.
The plan is to raise awareness and prepare for the return of jobs, while getting governments involved to work on tax, trade and education policies that enhance manufacturing competitiveness. TBM is also working to ensure manufacturer’s have the resources they need to improve technology development, productivity and innovation, and to create a stronger career development infrastructure.
“I’m not giving up, but the government needs to realize that manufacturing’s important. If it did, it would look at some way to offset the dollar for Canadian manufacturers,” he says.
Skills needed to grow
Southway says the focus should be on being more competitive with the US because onshoring will boost demand for goods.
“It’s scary that we’re not even focusing on the US, that we’re looking outside the US to compete. But if you can’t compete with the US, how can you compete?” he says.