Business Horizons (2014) 57, 381390

Available online at www.sciencedirect.com

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www.elsevier.com/locate/bushor

Global competitive conditions driving the

manufacturing location decision
Wendy L. Tate a,*, Lisa M. Ellram b, Tobias Schoenherr c,
Kenneth J. Petersen a

a
College of Business Administration, University of Tennessee, Knoxville, TN 37996, U.S.A.
b
Farmer School of Business, Miami University, Oxford, OH 45056, U.S.A.
c
Broad College of Business, Michigan State University, East Lansing, MI 48824, U.S.A.

KEYWORDS Abstract Given todays rapidly shifting global competitive conditionsincluding

Offshoring; customer location, natural disasters, currency valuation, labor and transportation
Reshoring; costs and availabilitymany U.S. companies are revisiting decisions about their pre-
Manufacturing location ferred manufacturing location(s). The purpose of this research is to understand some of
decision; the trends that affect whether U.S.-based companies bring their production back to the
Factor market rivalry United States or relocate it to different geographical locations (reshore). The focus is on
the key factors that affect companies manufacturing location decisions, the impor-
tance of these factors, and how the importance has changed over time. Because of the
complexity involved in the manufacturing location decision, key risk factors inherent in
the manufacturing decision are also assessed. Survey responses from 319 companies
that currently manage offshore manufacturing plants are analyzed. Among other
insights, this study found that 40% of these companies perceived a trend toward
reshoring to the U.S. in their industries. The companies involved in this study also
place an increasing importance on where their customers want them to locate, as well
as how the location could help expand into new customer markets. These and further
results and implications for U.S. manufacturing companies are presented herein.
# 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights
reserved.

1. Reshoring manufacturing footprint. The popular press has

Shifting global competitive conditions have spurred
many companies to consider changing their
* Corresponding author
E-mail addresses: wendy.tate@utk.edu (W.L. Tate),
ellramlm@muohio.edu (L.M. Ellram),
schoenherr@broad.msu.edu (T. Schoenherr), petersen@utk.edu
(K.J. Petersen)
lauded the emergence of a reshoring trend: the
relocation of manufacturing facilities from tradi-
tional offshore locations to more attractive off-
shore locations, or even home to the United
States. This article focuses on the relocation of
manufacturing capabilities back to the U.S., a phe-
nomenon that has received wide attention, includ-
ing a White House forum hosted by President Obama

0007-6813/$ see front matter # 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.bushor.2013.12.010
382
on January 11, 2012. What are some of the recent
developments regarding reshoring, and why have
we been witnessing this trend? This research ex-
plores these issues based on the results from a large-
scale survey among companies operating offshore
manufacturing facilities. This study is one of the
first to use empirical evidence toward investigating
these important developments. The goal of this
article is to provide practical recommendations
for managers to evaluate the reshoring decision.
Those who study and practice in the field of
supply chain management have focused on offshor-
ing from the perspective of chronicling best practi-
ces and how these can be implemented more
broadly, particularly in the areas of outsourced
logistics (Wallenburg, 2009) and information tech-
nology (Parker & Russel, 2004). Potential risks asso-
ciated with offshoring include reduction in firms
tacit knowledge, which may well be associated with
deterioration of market performance (Weigelt,
2009).
From the early 1990s through the mid-2000s, the
practice of offshoring increased significantly (Lewin
& Peeters, 2006). However, the economic downturn,
a heightened emphasis on sustainability, and in-
creasing customer expectations for flexibility and
improved cost performance led firms to reconsider
this strategy (Bergman & Ramachandran, 2010).
Interestingly, the professional discussion around off-
shoring is much louder than the discussion of off-
shoring in the academy. For example, General
Electric has been featured in several stories about
its efforts to bring back manufacturing to the U.S.
(Barr, 2012). Other firms considering increasing or
returning manufacturing to the U.S. includebut
are not limited toChesapeake Bay Candle Com-
pany, Peerless Industries, Buck Knifes, Intertech
Plastics, All-Clad Manufacturing, Karen Kane, Toyo-
ta, Honda, Nissan, General Motors, and Siemens
(Booton, 2012; Markowitz, 2012). This reshoring
trend has been identified in a number of recent
scholarly and consulting studies. A prominent con-
sulting study suggests that 28% of the companys
clients have reshored some manufacturing, yielding
an average of $23 million in annual cost savings
(Acorn Systems, 2012). It is predicted that rising
wages in China and improved U.S. productivity will
lead more firms to shift a significant portion of their
manufacturing back to the United States (Sirkin,
Zinser, & Hohner, 2011).
Articles within the domain of reshoring detail the
movement of manufacturing activities back to the
home country (homeshoring), as well as the reloca-
tion of manufacturing activities closer to the home
country (nearshoring). Ellram, Tate, and Feitzinger
(2013) suggest that competition in resource
W.L. Tate et al.
marketsor factor market rivalrycauses a shift
of manufacturing away from what were once low-
cost countries toward newer low-cost countries (re-
shoring) or closer to customer/consumer markets
(nearshoring or homeshoring), where labor is readily
available, the transportation infrastructure is well
established, and the geopolitical environment is
conducive to this change. Reasons for homeshoring,
particularly back to the U.S., include reduced total
cost of ownership, improved quality and supply of
materials and services, reduced intellectual prop-
erty risk (Zimmerman, 2013), improved flexibility
(NIST, 2012), and improvements in the speed and
simplicity of doing business (DePass, 2012).
The brand appeal of Made in America is also well
received by many developed-world customers/con-
sumers (Markowitz, 2012). In general, while Eastern
Europe and North Africa remain attractive for Euro-
pean companies (Simon, 2009), Mexico and Latin
American countries continue to represent a popular
nearshoring location for North American firms (Har-
rington, 2012).
2. Why is reshoring an attractive
option?
For decades, developed nations with mature con-
sumer and business markets sent both blue- and
white-collar jobs to countries where labor, engi-
neering, and managerial costs were significantly
lower. At the turn of the 21st century, many firms
were moving at least some of their operations to
East, Southeast, and South Asia. Driving this exodus
was the hope of capitalizing on lower costs of raw
materials and labor (Lyles & Park, 2013). Just a
decade later, many of these formerly low-cost
regions are suffering from higher labor costs, higher
raw materials costs, and decreased responsiveness
and quality1.
Additionally, working capital is increasingly tied
up in inventory trapped on slow-steaming ocean
transit and in safety stock held at distribution cen-
ters. Innovation also suffers from the physical, and
sometimes cultural, distance between manufactur-
ing and design operations. Over time, the balance of
labor shifted and the unemployment rate in the
wealthier countries soared to new levels. This in-
stigated involvement of developed-market economy
politicians and prompted cries to bring jobs home. In
the United States, this topic was one of the most
1
This is perhaps due to greater capacity utilization of manu-
facturing plants in these regions.
Global competitive conditions driving the manufacturing location decision
discussed political issues during the 2012 presiden-
tial election.
Offshoring and manufacturing location decisions
are inherently fraught with complexity. Relevant
information often resides in different functional
silos and benefits remain contingent on the accuracy
of total cost and total value calculations, as well as
the strategic appropriateness of the offshoring de-
cision (Aron & Singh, 2005). Some firms have made
poor location choices. For example, a company that
outsourced customer service to a call center located
in India experienced plummeting customer ratings
because of differences in perceptions and an inabil-
ity to meet customer needs (Tate, Ellram, Bals, &
Hartmann, 2009). Beyond performance concerns,
the mid-to-late 2000s saw price instability, rising
costs, constantly changing regulations, and record-
high fuel prices (U.S. Department of Energy, 2012).
These factors greatly reduced the attractiveness of
offshoring and stoked the current interest in chang-
ing manufacturing locations in general. They serve
as a key contributor to the resurgence of reshoring.
Costs associated with manufacturing and manage-
rial labor in different regions around the world con-
tinue to shift, as do prices and the availability of raw
materials; this makes the location decision challeng-
ing and perhaps subject to greater risk of failure. To
better understand this phenomenon, 319 managers
from a variety of organizations were surveyed regard-
ing the factors that influence their reshoring decision,
what types of risk are associated with the location
decision, and how companies are dealing with these
risks. There are many factors involved in the manu-
facturing location decision, which we view through
the lens of factor market rivalry. This perspective
suggests that companies must be cognizant of re-
source availabilityeven non-strategic resources overall labor costs increased in importance over
as the manufacturing location decision is made. Com-
petition for resources is an important issue that
erodes the advantage of offshoring, reversing the
benefit of the decision to offshore and shifting the
pendulum so that another location is viewed more
favorably. Next, we present some of the factors that
have been tipping the balance toward reshoring.
3. What is happening in the U.S. and
why?
The results from a survey of managers on offshoring
practices are presented in the following paragraphs.
Costs were seen as significantly important in regard
to the reshoring decision and are therefore dis-
cussed first. Appendix 1 shares additional demo-
graphic data and industry representation of the
participants.
383
3.1. Labor cost gap-factor market rivalry
The cost gap between the United States and China
is decreasing, and other emerging markets are
following on the same path of economic develop-
ment, with increased labor and other costs (Big
Mac, 2013). In some areas of China, hourly wages
have more than doubled, making Vietnam and
even Mexico more attractive when considering
consumer markets in North America. Currently,
China is roughly on par with India and Mexico
from a total cost perspective, and may be on
par with lower-cost regions of the United States
by 2015 (Reshoring Manufacturing, 2013). Wag-
es in China are rising due to factor market rivalry,
which occurs when firms compete for the same
resources. These resources often seem ubiquitous,
like cheap labor seemed in China 10 or 15 years
ago. However, as demand for semi-skilled, adapt-
able labor has grown in Chinas manufacturing
core, the labor supply cannot keep up, causing
wages to increase by 15%20% a year (Sirkin,
2011). While companies have started to move
toward lower labor costs in inland China, these
more distant regions have longer supply chains,
which drives higher transport cost and pipeline
inventory, partially offsetting some of the labor
cost benefits. Because labor comprises only a
portion of the total cost of doing business, other
costs of doing business must also be competitive or
less expensive to make a manufacturing location
attractive.
Along with the cost of labor, respondents identi-
fied labor cost stability as an increasingly important
factor influencing manufacturing location decisions.
In our study, 58% of participants indicated that
the past 3 years, while 66% indicated that factor
would be even more important over the next 3
years. About 43% indicated the importance of labor
cost stability had increased over the past 3 years,
while 59% indicated it would increase over the next
3 years.
The improving ratio of U.S. labor output/produc-
tivity per labor dollar has also been a significant
factor in making the reshoring decision more attrac-
tive. For example, when GE decided to move its
GeoSpring water heater from China back to the
United States, it collaborated with its workforce
and was able to reduce direct labor hours from 10
to 2, while at the same time reducing materials
costs and quality costs. As a result, the price of the
U.S.-manufactured unit was $1,299 versus $1,599
for the China-manufactured unit (Fishman, 2012).
This relates to the next point: the availability of
skilled labor.
384
3.2. Skilled labor
As indicated in the preceding example involving GE,
the U.S. is known for skilled labor and innovation.
There is a growing shortage of skilled and semi-
skilled labor in China as more factories automate
and replace manual labor with higher-technology
equipment and manufacturing processes (Huang &
Lynch, 2013). The Economist recently reported that
Chinas labor market is overstretched and all high-
quality labor has been exhausted (Reshoring Man-
ufacturing, 2013). Availability of skilled labor also
became a problem in India when many companies
offshored their call center services (Tate et al.,
2009). In situations like this, companies had to hire
people with lesser qualifications; consequently,
quality became a problem.
As increased wealth enters into these low-labor
cost countries, the needs of employees change. Jobs
and industries that were once aspired to become less
desirable, and the total cost gapfor example, in
Chinais slowly eroding. Among the survey partici-
pants, around 45% indicated no change in the impor-
tance of properly skilled labor as influential regarding
the manufacturing location decision, while 30% said it
would be of increased importance over the next 3
years. Over 60% of respondents indicated no change in
the importance of availability of local management in
the current or next 3 years, while 31% placed in-
creased emphasis on this factor over the next 3 years.
3.3. Energy cost
Energy represents an important manufacturing cost.
Currently, the United States has the lowest cost per
megawatt of any country reporting to the Interna-
tional Energy Agency, is second-lowest (to Canada)
on the cost of industrial natural gas, and is second-
lowest (to Mexico) on the cost of diesel fuel. Clearly,
the attractiveness of U.S. energy costs contributes
to it being a very favorable location when serving
markets in the Western Hemisphere (International
Energy Agency, 2012). Chinas energy costs have
continued to rise due to shortages in energy supplies
and significant dependence on imports. To the ex-
tent that energy costs influence transport costs,
study participants were very concerned about the
stability of transportation cost, with over 60% as-
signing this factor increased emphasis over both the
past 3 and the next 3 years in regard to manufactur-
ing location decision.
3.4. Currency exchange
Real and anticipated volatility in currency valuation
increases the risk of doing business outside of ones
W.L. Tate et al.
own currency. From June 2003 to June 2013, the
Chinese Yuan strengthened by 35% against the U.S.
Dollar, which makes the price of Chinese goods
much less attractive in the United States (Reshor-
ing Manufacturing, 2013). In considering whether
currency stability was a more or less important
factor in the manufacturing location decision,
27% of respondents indicated the factor had in-
creased in importance over the past 3 years, and
36% indicated it would increase in importance over
the next 3 years. However, 23% indicated currency
stability would decrease in emphasis as part of
the manufacturing location decision over the next
3 years.
3.5. Tax structure
Global tax structures have been paid much media
attention, with some countriessuch as Ireland,
India, and Chinastanding accused of being tax
havens to lure in rich companies. Other countries,
like the United States, scare companies away with
their high tax rates (Yuan, 2013). In general,
taxation is a factor that does not favor the U.S.
as a manufacturing location. Yet within the U.S.,
individual states vie to lure business from other
states and municipalities by offering a range of
incentives. Over 50% of the companies we surveyed
indicated that they gave the same weight to tax
advantages in the manufacturing location decision
over the past 3 years and next 3 years. Perhaps this is
a reflection that things have not changed, especially
since about 60% believe tax risks have actually
decreased. Only about 24% of those surveyed indi-
cated that they will give more weight to tax ad-
vantage in the location decision over the next 3
years.
3.6. Shipping time/customer proximity
Slowing of the global supply chain due to shipping
industry adoption of slow-steaming ocean freight
has increased the length of global supply chains in
real time. Yet, companies want to reduce the length
to better manage inventory levels and working cap-
ital, and to be more responsive. Slow-steaming
reduces the ships speeds, CO2 emissions, and fuel
usage. New ships are being built to optimize per-
formance at slow-steaming speeds. Transit time
from Shanghai to the West Coast of the United States
has gone from 15 to 17 days, while it has increased
from 29 to 3536 days to the East Coast (Solomon,
2012). Despite the intermittent shortages of trans-
portation due to factor market rivalry and growing
demand, 50% or more of respondents in every in-
dustry indicated that their focus on the availability
Global competitive conditions driving the manufacturing location decision
of knowledgeable intermediaries had not changed in
the past 3 years.
However, considering firms projections for the
next 3 years, there was a greater spread in the way
that organizations answered this question. While
over 60% of the individuals surveyed said that this
would not change in importance, it varied greatly
across industries. Over the next 3 years, availability
of knowledgeable intermediaries (3PLs, freight for-
warders, etc.) was deemed increasingly important
in the following industries: chemicals (53.3%), food
and beverage (35.7%), and pharmaceuticals and
biotech (33.3%). Despite past shortages and threats
of dock strikes on both the East and West Coasts
during 2012, there is not considerable concern
about future transport shortages, with around 60%
indicating no change in emphasis on transport avail-
ability over the past or next 3 years. About 28%
indicated they would place more emphasis on trans-
port availability over the next 3 years. Perhaps this
small shift in emphasis is a reflection of the slow
global growth rate and a lack of recent shortages.
For example, when the GeoSpring water heater
was manufactured in China, the time from comple-
tion, to delivery, to the retailer was 5 weeks: 4
weeks on the water and 1 week to clear customs
and arrive at the distribution center. Now it takes
30 minutes for GE to get the finished product to its
distribution center (Fishman, 2012). This fast re-
sponse time and leaner supply chain associated with
locating manufacturing close to the end customer/
consumer saves working capital in inventory and
improves responsiveness to changes in demand.
Those surveyed indicated that distance between
their manufacturing location and customers is a
continuing concern. In most cases, its influence on
the manufacturing location decision is similar over
the past and the next 3 years. The following section
examines which factors create the most risk in the
manufacturing location decision.
4. What makes the manufacturing
location decision risky?
Currency value has a significant impact on the at-
tractiveness of buying and selling on the global
market. When the U.S. Dollar is weak relative to
other currencies, it becomes more attractive to buy
goods and services in the U.S., as they are cheaper in
relative terms. This is the case currently with the
U.S. Dollar in comparison to the Euro, the British
Pound, the Canadian Dollar, and the Brazilian Real
(Big Mac, 2013). While the Chinese Yuan is still companies are moving manufacturing from China to
relatively weak versus the U.S. Dollar, absolute costs
are going up in China. There is also a perception that
385
the Chinese Yuan is currently undervalued and will
be revalued to be less favorable to the U.S. Dollar. In
addition, concerns exist regarding whether the Chi-
nese government will continue to maintain a mon-
etary policy that is intended to keep the Yuan
relatively weaker than its developed-market trading
partners (The Yuan, 2013). About 40% of survey
participants indicated that the attention they pay to
currency fluctuations will stay the same over the
next 3 years, while 37% plan to pay more attention.
About 45% of respondents see the issue as creating
the same level of risk, while 17% see it as creating
greater risk over the next several years. Perceptions
may vary widely, depending on the region in which
one does business. However, it is clear that currency
fluctuation is an influencing factor to which compa-
nies pay attention.
Switching costs also increase the costs and asso-
ciated risk of change. The higher the initial setup
costs and costs of switching, the greater the impact
of making a poor location choice. As companies
comprehend the impact of factor market rivalry,
they recognize the shrinking time span during which
a given region may provide advantage before other
firms follow suit, unfavorably shifting costs and
service levels. The costs of setting up and switching
manufacturing locations are thus receiving more
attention. While 37% of participants indicated that
they plan to give this issue as much attention over
the next 3 years as currently, 46% plan to give it
more attention. There is greater recognition that
this is a risk factor, though it appears organizations
believe they are managing it better; 45% of partic-
ipants indicated setup/switching costs present the
same amount of risk in the future, while 14% in-
dicated it presents greater risk.
Rising consumer/customer demand leads to
tighter supply markets and correspondingly higher
prices (ceteris paribus), reducing the attractiveness
of a given supply market. Availability of appropriately
skilled labor, the rising cost of labor and labor cost
stability, the rising cost of fuel contributing to in-
creased transportation cost, and cost instability are
all contributing to factor market rivalry and causing
organizations to reconsider their manufacturing lo-
cation decisions. Survey participants recognized fac-
tor market rivalry in many of their location decision
factors (see Table 1). A recent study indicated that
while the productivity-adjusted wage gap has been
decreasing between the U.S. and China, the United
States productivity-adjusted wage rates are still two
to three times higher than those of China (DePass,
2012). To return to a state of very low wages, some
other Asian countries, such as Vietnam, to access
labor costs similar to former levels in China.
386
Table 1. Key factor market rivalry issues
Factor market rivalry concerns of survey participants in manufacturing location decisions
Factor Increased attention in
same
Availability of appropriately skilled labor
Labor cost
Labor cost stability
Transportation availability
Stability of transportation costs
Another risk is that of compromise or theft of
intellectual property (Zimmerman, 2013). There has
been a significant amount of publicity regarding the
theft of intellectual property (IP) from various west-
ern companies by Chinese firms in particular, to the
point where the U.S. government has specifically
requested that the Chinese government take a stand
against IP theft (Klimasinska, 2013). While the Chi-
nese government denies this is a problem, many U.S.
companies have amassed evidence that such theft
has occurred and has damaged their competitive-
ness. Using social and ethical practices as a proxy for
intellectual property rights, most study respondents
indicated an unchanging emphasis on social and
ethical practices, and a decreased risk associated
with the social and ethical practices at their off-
shore locations. Only about 10% saw an increased
risk. This was one of the many factors cited in the
literature that influenced industries to move its
manufacturing operations out of China.
5. How can managers make the right
decisions?
There are many facets of the reshoring decision
to consider. The biggest issue is perhaps that the
environment is constantly changing and factor mar-
ket rivalry for non-strategic resources makes it in-
creasingly difficult to ensure that the decisions are
producing the best total value. It seems that organ-
izations have historically looked at their manufac-
turing locations in too static a manner. They have
not considered the impact of long-term changes,
such as labor and fuel cost increases and changing
consumer demand. As companies began to better
understand the total cost of ownership of their
manufacturing operations, including funds tied up
in working capital in the form of inventory and the
way that long lead times truly limit their flexibility,
domestic manufacturing frequently appears to be a
more total cost-effective choice.
W.L. Tate et al.
Increased risk in
next 3 years next 3 years
higher same higher
43% 30% 36% 20%
27% 66% 39% 22%
34% 49% 37% 25%
57% 29% 29% 5%
24% 62% 38% 24%
5.1. What situations make the reshoring
decision the right decision?
There are myriad reasons the U.S. market is showing
a perceived trend toward reshoring, but what makes
reshoring the right decision? Do specific scenarios, if
present within an organization, make reshoring
more attractive? Many of the factors considered
important by the survey respondents are those that
should guide managers to consider the reshoring
decision. For example, customer location is rele-
vant; numerous companies in the automobile indus-
try have built manufacturing facilities in the
southeastern U.S. to better serve domestic market
needs (Underwood, 2012). In addition, a trained,
eager-to-perform workforce is also a benefit of
reshoring. For example, because of new agreements
with the United Auto Workers (UAW), Ford brought
back production from China and Mexico to Ohio and
Michigan (Visnic, 2011).
Table 2 lists other factors that can trigger a need to
reconsider the manufacturing location decision. If
these factors are present, then the potential benefit
of reshoring or nearshoring is noted. Other factors
such as product quality, cost, size, and shipping
requirements are also key in helping to make the
shoring decision. If logistics and transportation
represent an increasing percentage of total cost,
then by reshoring, the supply chain will be more
streamlined and therefore more efficient and less
costly. Some products only make sense to produce in a
market close to the customer; for instance, items
that are large, heavy, and difficult to move. Managers
must consider not just the price that is being paid to
the supplier, but also the total cost of doing business
with a particular supplier or region.
If an organization sees increasing levels of risk
that might cause disruption in the supply chain,
reshoring is more likely an option. For example,
volatility of the political environment, currency,
and labor unrest in certain parts of the world might
change the parameters of the shoring decision.
Global competitive conditions driving the manufacturing location decision
Table 2. Factors that generate the need to consider manufacturing location and advantage of nearshoring or
reshoring
Factor indicating need to reconsider location
Strong domestic customer base is being served by
offshore manufacturing
Very sensitive IP
Increasing shortages and price increases of local,
routinely needed services, like transportation,
warehousing, and labor as indicated by factor
market rivalry. Generally increasing price levels
significantly faster than global averages.
Repeated environmental and/or human rights
violations
Regional financial instability in manufacturing
location
Labor costs are a decreasing factor in manufacturing
due to automation, or could be due to potential
automation
Financial, social, environmental, and political in-
stability of a region would drive an organization to
consider reshoring.
5.2. What assessment tools should be
used to make the right decision?
A number of different frameworks could and should
be used in helping to make the right shoring deci-
sion. A key notion here is that of scenario planning,
which considers the impact of alternative futures on
long-term decisions. The reason a company relo-
cates is because its chosen manufacturing location is
no longer as attractive as other alternatives. Why is
that the case?
As a company is making the decision, are all of the
what if questions considered, such as what if many
companies from other industries also locate plants
there over the next couple of years? What if that
region comes under scrutiny for poor human re-
source/social or environmental practices? Potential
decisions need to be viewed through the scope of a
variety of assumptions or possible scenarios about the
future of the world. This helps the organization to
truly understand some of the driving forces that will
affect its decisions the most, and what data it should
focus on (Wilburn & Wilburn, 2011). Historically,
decisions have often been made with a cost reduction
focus, assuming that the future would look relatively
the same as the past. A company can use scenarios of
the future developed by others, incorporating issues
such as the varying levels of risk that may be present
in a region 2, 3, 5, 10, or 20 years into the future.
A firm can also perform its own country risk
assessment as one of the first steps in assessing this
387
Potential advantage of nearshoring or reshoring
Reduced inventory and transport costs, especially with the
lowest global fuel costs in North America
Domestic and nearshore locations offer greater protection
and enforcement. Easier to monitor closer locations
More predictable pricing and availability
Greater visibility, commonality, and enforcement of
sustainability laws
Locating in the same region as customer may create a more
balanced financial flow, stability in currency exchange
Since cheap labor is generally a major advantage of low cost
countries, it might be worth reanalyzing the situation
decision. Companies such as Dunn and Bradstreet
compile complete regional assessments for a spe-
cific location, including the associated risk of that
region in the future.
Assessing the total cost of doing business in a
region goes hand-in-hand with scenario planning.
When attractive alternatives are identified by sce-
nario planning, cost models should be developed
that include the cost implications of the outcomes of
different scenarios under a range of variables. One
possible such sensitivity analysis might include con-
sidering whether various costs, such as labor and
fuel, change by a range of percentage up and down.
Would these changes affect which location was most
attractive? Would it take a large number of extreme
changes to reduce the attractiveness of a location,
or could it be swayed by just a few changes working
together? What if key resources, such as local man-
agement and labor, are not available for a period of
time? There are many factors and costs to consider
in making the right shoring decision. Managers must
be flexible, as the factors and costs tend toward
rapid fluctuations. Threats of terrorism can cause
port handling fees to increase rapidly. Legal restric-
tions, tariffs, taxes, and duties can change due to
shifts in international relations, or for environmen-
tal and social reasons. Managers need to understand
which issues can shift a decision from favorable to
unattractive, and develop an understanding of how
likely these changes might be.
Chasing lower cost of ownership via manufactur-
ing in lower-cost regions of the world is not always a
winning proposition. Managers must take a longer-
term perspective that considers total costs, life
cycle costs, and other risk issues. Make the models
388
as flexible as possible, and thoroughly and routinely
scan the changing landscape to better understand
the rapid changes.
5.3. How can we communicate,
negotiate, and repatriate after the right
decision is made?
Over the past decade, firms have developed signifi-
cant insights regarding the opportunities and risks
associated with offshoring, nearshoring, and home-
shoring decisions. Manufacturing locations have
been shifting from one low-cost region to another
as conditions change and competition for relatively
ubiquitous, substitutable resources grows in a given
area, making that area less attractive. Increasingly,
organizations are developing models or approaches
to their manufacturing locations that allow them to
analyze these decisions more frequently, and tweak
or adjust them over time. It is important for those
involved in and affected by the decision to under-
stand that the organization is committed to long-
term survival, and that requires change.
It is also important to remember that the jobs
being reshored are not the same jobs that left the
U.S., since advancements in technology have played
a significant role in helping to automate manufac-
turing and reduce the labor portion of manufactur-
ing (Fishman, 2012). Thus, fewer jobs may return,
and those that do may require differentand some-
times greaterskills. The old-style union versus
management mentality is no longer acceptable.
Companies, cities, and even entire states have seen
that this approach does not work if both parties are
to survive and thrive. Thus, there must be a culture
of continuous improvement where perhaps there
was not one in the past. In exchange, the workforce
may want more input into the organizations oper-
ations, improvements, and decisions.
The manufacturing location decision is central to
business strategy and of crucial concern to most
manufacturing firms, regardless of the location of
their customer and consumer markets. One of the
consistent themes is that much of the tacit knowl-
edge necessary to make the best total value decision
is both cross-functional and cross-organizational.
Therefore, firms must have a supply chain and busi-
ness intelligence strategy designed to capture and
make available this important information to ana-
lyze the current and projected attractiveness of a
given location, and to make that location work after
the plant is up and running.
As an example, one equipment manufacturer
that participated in this research experienced poor
quality and attempts to steal IP when it set up
manufacturing in China; hence, it decided to move
W.L. Tate et al.
back to the United States. However, a consultant
advised it to move instead to Mexico, which was
projected to save the company $100 million per
year. But the president of this equipment manufac-
turer considered Mexico unsafe, and was unwilling
to put employees at risk. Manufacturing was thus
moved to the U.S., with the understanding that $100
million in costs would have to be reduced to keep
operations there. Responding to the challenge, the
company exceeded its goal savings via waste reduc-
tion and then moved additional, more complex and
quality-essential manufacturing back to the U.S.
This equipment manufacturer wants to sell in the
U.S. what is made in the U.S. Because change is
constant, however, annual total cost evaluations are
conducted to ensure that its location decisions con-
tinue to be the most effective. The company under-
stands that this process must be continuously
reviewed and updated as necessary so the firm
can stay on top of the ever-changing global land-
scape.
6. Conclusion
The phenomenon of offshoring to low-cost regions
will continue. The opportunity is to select the best
locations, given the firms current competitive busi-
ness strategy, while considering the flexibility to
adapt this decision effectively to future scenarios.
For instance, the level of capital investment in a
low-cost region may be very different if the business
strategy is based solely around capitalizing on the
shorter-term lower cost of manufacturing to serve
developed-world markets when compared with at-
tempting to develop these lower manufacturing
cost markets into future consumer markets. In
the latter case, firms may well need a multi-stage
strategy that begins to lay the groundwork for a
second phase of low-cost manufacturing that will be
implemented to serve these once-developing/now-
developed marketplaces. Considering the reshoring
opportunity beyond its immediate benefits and in-
corporating a medium- and long-term strategy that
can be effective in a number of possible future
environments is essential to long-term success in
this area.
Acknowledgment
The authors would like to thank the Council for
Supply Chain Management Professionals (CSCMP)
for a grant that supported this research.
Global competitive conditions driving the manufacturing location decision 389

Figure 1. Industry representation of participants

Aerospace and defense

9% 4%
8% Apparel and footwear
4% Automotive parts and vehicles
Chemicals
9%
Computer hardware
Electronics manufacturing
21% 5%
Food and beverage
Industrial parts and equipment
8% Medical and surgical supplies
Pharmaceutical and biotech
5% Services
11%
3% Construction
10% 4% Other

Figure 2. Company annual sales

9%

12%
Over $40 billion
37%
$10-$39.9 billion
$2.0-$9.9 billion
$500 million to $1.9 billion

17% $100 million to $499 million

Less than $100 million

12% 13%

Figure 3. Functional representation of respondents

13%
21%
Engineering
6%
Finance
Logistics
Marketing
10%
Supply/Purchasing
13%
General management
IT

16% Other
7%

15%

Appendix 1. About the research
The research was sponsored by the Council of Supply
Chain Management Professionals (CSCMP). The
sponsorship was based on the belief that a com-
panys decision to offshore and reshore could pro-
foundly impact its members. The survey was
launched during an election year where bringing
jobs back to America was a key political platform.
The research team first conducted a broad review of
the academic literature related to manufacturing
location decisions and also reviewed current articles
in the popular press related to offshoring and re-
shoring.
The survey instrument was developed based on
this review of the literature and discussion with
practitioners at the 2011 CSCMP Conference and
the Supply Chain Forum at the University of Tennes-
see. Members of the research team, the research
board, other academics, and practitioners reviewed
the survey instrument before it was launched in
August of 2011. The discussion in this article is based
390
on the responses from 319 practicing managers with
experience in making the manufacturing location
decision. Demographic information is presented in
Figures 13.
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