A.T. Kearney’s Report on Reshoring: Some Right, Some Wrong

A.T. Kearney's report Rehoring In Reverse Again got some things right, others clearly wrong:

Right:

The skilled labor shortage is a severe problem

Manufacturing costs are lower in many other countries

Imports rose in 2017

Wrong:

"Reshoring declined in 2017." No, it actually increased about 50% from the 2016 record high. Fig 1 shows the number of reshoring and FDI (foreign direct investment) jobs announced/year.

Fig 1. Reshoring and FDI jobs announced/year

A.T. Kearney’s Reshoring Index does not actually measure reshoring. It essentially uses the trend in imports to imply a trend in reshoring. Something like describing an object based on only seeing a portion of its shadow. The Reshoring Initiative measures reshoring directly and reported that a record 171,000 manufacturing jobs were announced in 2017 as reshored or FDI’d. (Fig. 1) Factors that cause Kearney’s Index to be wildly inaccurate include changes in prices and exchange rates in the various countries and the relative rate of growth in each country. Also, trade actions can increase or reduce imports. For example, the announced tariffs for solar panels, and appliances caused a surge in these products prior to implementation.

Kearney’s Index is a direct measure of U.S. imports, which are clearly too high, not a measure of reshoring, which is one of many factors that influence the level of imports and has kept imports from growing more.

# of reshoring cases:

• A.T. Kearney’s “Database” shows only 20 cases of reshoring reported in 2017, down from over 200 in 2013 and 2014

• Reality: 223 cases in 2017, up from 158 in 2013 and 124 in 2014. You can find all of these cases in the Reshoring Initiative Library.

It would be better to compare the rate of change in U.S. manufacturing output or jobs over a longer time period. Fig. 2 shows that U.S. mfg. jobs as of 12/31/17 were about 2.5 million higher than would have been predicted in 2007. The primary reason: offshoring has slowed and reshoring and FDI have surged.

Fig 2. BLS Manufacturing Employment

FDI

• Kearney chooses to ignore FDI (foreign direct investment by foreign companies) which is essentially the same phenomenon as reshoring by domestic companies. FDI continued to grow in 2017, but at a slower pace than reshoring.

Conclusion

Kearney seems to be more interested in hype than in the consistent reporting of data. We can find no evidence that the Index was released for 2016 when they admit that reshoring was strong. The Reshoring Initiative reports results accurately and consistently, whether or not the results favor reshoring. “Some A.T. Kearney statements were completely misleading, chosen to get attention,” says Harry Moser, President of the Rershoring Initiative. “They succeeded to the disadvantage of U.S. manufacturing. Recognition of the strength of the reshoring trend is a major factor driving companies to reevaluate offshoring and many individuals to choose manufacturing technology training, helping to fill the skilled workforce gap.”

“It is clear that about 25% of what is now offshored would be economically reshored today if companies used TCO (Total Cost of Ownership) instead of wage arbitrage or PPV (Purchase Price Variance) to make sourcing and siting decisions. A.T. Kearney would better serve its clients and country if it helped educate companies rather than discouraging them.”