Improvements in industrial automation, particularly in collaborative robots, will make it easier for large and small U.S. factories to increase productivity and global competitiveness, states the conventional wisdom. This in turn, should enable manufacturing reshoring of work that was sent overseas.
However, a recent study by A.T. Kearney found that U.S. imports of manufactured goods from offshoring countries last year reached $751 billion, a record high. In addition, China was the top source of such goods, with a total of $365 billion, a 9% increase from 2016.
With global trade and tariffs in the news, plus widespread fears of robots taking jobs, what do these results mean? In fact, the “Reshoring in Reverse Again” report may not be all bad news.
A ‘complex picture’ of manufacturing reshoring
“The idea of reshoring has received a lot of hype for the past five years,” said Johan Gott, a principal in A.T. Kearney’s operations practice and co-author of the report. “It’s important to check the facts.”
“While imports from Asia are growing fast, U.S. manufacturing is doing quite well,” he told Robotics Business Review. “We’re seeing relatively healthy growth in the U.S. manufacturing industry, supported by a healthy U.S. economy over the past few years.”
Both U.S. imports and exports have been rising, reported A.T. Kearney, but imports have risen more quickly.
“In the past decade, the numbers are quite consistent,” Gott said. “Imports from low-cost Asian countries are increasing faster than U.S. manufacturing output is.”
In addition to automation, there are several factors that could affect the flow of such goods and manufacturing reshoring, he noted. They include the costs of labor, shipping, production capabilities and quality, the types of items produced, and currency exchange rates.
“The difference here is that manufacturing processes that are imported from Asia tend to have also a higher ability to respond quickly to demand shifts, in terms of adding capacity,” Gott said. “To me, this is not surprising.”
Still early days for cobots
“A lot of large manufacturers in the U.S. already have a high degree of automation,” said Gott. “Production and manufacturing that can be automated has to a certain degree stayed, whereas other production that has been harder for robots to do, that has a high labor content, has been moving to places where labor has a lower cost.”
He described collaborative robots, or cobots, as “highly promising” but added, “We haven’t seen the rollout of that kind of scale that we need to get a meaningful impact on the numbers we’re looking at.”
“What we’re seeing is that manufacturing reshoring is something that may still happen in the future, but it hasn’t happened yet,” Gott said. “Cobots are an interesting future possibility, and we’re waiting on larger-scale deployment.”
Competition from China
While China is both a trading partner and competitor to the U.S., it faces the same wage pressures and demand for robots as the U.S.
“We’re talking about automation and the ability to move production back to U.S. shores, but at the same time, what we’re seeing is China highly focused on implementing automation technology in its manufacturing processes,” Gott said. “It’s almost a race here in terms of deploying advanced robotics into manufacturing.”
Some production has already moved from China to Southeast Asia.
“In certain industries, it has already had an impact,” explained Gott. “For example, China has seen apparel and textiles moving to Cambodia, Bangladesh, etc., as Chinese labor costs grow. But that doesn’t necessarily mean that the manufacturing process would move back to the U.S.”
In addition, China wants to develop its own robotics and artificial intelligence rather than rely on foreign technology. “China is actively working to modernize through advanced manufacturing so that it’s not just a source of low-cost labor,” he said.
Robotics trends over time
Is the recent ratio of U.S. production to imports a significant indicator of a lack of manufacturing reshoring?
“I think we can say with confidence that this is a real trend — two years where it hasn’t increased,” Gott responded. “In five years, will this continue to grow, or plateau out? I believe it will plateau out at some point.”
He added that it’s too soon to tell the effects of the current U.S.-China trade disputes and tariffs on manufacturing reshoring and automation.
Gott observed that the American and Chinese automotive markets have been relatively isolated from each other, with relatively little shared production or direct trade.
“Before we saw the tariffs come on, that started to increase — China became a new market for U.S., and Chinese makers were starting to think about exporting vehicles to the U.S. in a larger degree,” he said.
Space where reshoring could be occurring
However, there are anecdotal examples of automation helping to bring production to the U.S. Gott cited the move by Hon Hai Precision Industry Co. to build a plant and open its U.S. headquarters in Wisconsin. The company, which does business as Foxconn Technology Group, received $4 billion in tax breaks and incentives to do so. Its factory will produce specialized consumer electronics.
There are a number of public-private initiatives under way, including the Advanced Robotics for Manufacturing (ARM) Institute, which is dedicated to encouraging the adoption of automation and workforce development to help U.S. manufacturing be competitive. The ARM Institute recently announced the first projects that it will be supporting.
Updates: Reactions to the report
Rosemary Coates, the executive director of the Reshoring Institute, responded with the following statement (edited for length):
“[The researchers] seem to think that import shipment values are tied to reshoring, but they never explain how this correlation could possibly be correct. It is not.
“The value of imports into the United States is far more representative of the maturity of Chinese manufacturing where higher-value, more sophisticated products, such as iPhones, are being manufactured and then imported into the U.S. It also represents the increasing importation of high-value machinery and parts. China isn’t just sending us cheap toys and clothing anymore.
“Instead, those of us actually working with reshoring clients can demonstrate the growth in manufacturing jobs and the hard work companies are doing to extract costs through production automation. Robotics is key to these TCO calculations.
“In addition, many of our clients are making decisions to stay in the U.S. or expand operations here, not simply to bring manufacturing back. We count these decisions as ‘global manufacturing strategy’ — deciding what to manufacture in what part of the world. This is a type of reshoring decision. We also acknowledge foreign direct investment as a type of reshoring, as it represents new factories and jobs in America.
“Any decision to reshore must include a TCO calculation. What makes manufacturing attractive here is the use of new technologies such as robotics, 3D printing, sensors and IoT, and advanced machinery. Automation is key, as is the requirement for skilled workers to operate the robots, what we call ‘new collar’ jobs.”
Byron Clayton, CEO of the ARM Institute, also replied about manufacturing reshoring:
“Since ARM was formed about 1.5 years ago, we have spoken to many manufacturers from the smallest to some of the largest in the world, and we hear a recurring theme: Their No. 1 issue is the lack of qualified personnel. This stems from several areas:
- The perception that manufacturing is not an attractive or viable career path
- The U.S. education system is not adequately preparing people for advanced manufacturing careers
- Manufacturing is not investing in workers to reskill for advanced technologies
- There is a lack of resources for training at small and medium manufacturers (SMMs)
“While at this time, we don’t have statistical data to determine if this workforce challenge is the primary cause of the drop in reshoring as reported in the A.T. Kearney report, we know that it is significant. That’s why ARM is equally committed to investing in advanced robotics education and workforce development projects along with technology projects, to start to turn this trend around.”
Note: Editor Keith Shaw contributed to this article. We will also have a webcast with the Reshoring Institute this fall.