As the human tragedy of the novel coronavirus unfolds here, the impact on China compounds for the worse, in loss of life and now in the increasingly dire consequences for its mighty manufacturing base. If tariffs forced U.S. companies to look harder at manufacturing in China, coronavirus will only accelerate the exit of American brands. China's rise to world manufacturing superpower may be over.
Newt Gingrich, erstwhile Congressman and conservative pundit, believes the U.S. is ready to step into the void. Last week Gingrich proposed a one-time tax credit for companies moving production from China back to the U.S.
What Gingrich misses, of course, is that U.S. companies aren't operating in China because of taxes, but because America's manufacturing supply chain often doesn't enable local production.
That said, companies aren't powerless to invest in a more capable supply chain here. We've chosen not to, instead chasing less expensive labor and materials in Asian countries more than happy to build parts and products for U.S. brands and companies.
But it seems that America's unconditional support of globalization is over. The implications of our choices are clear enough.
Here's a blueprint to bring more manufacturing back onshore:
- Make a decision: Do communities want new manufacturing jobs or not? It's not a trivial decision; a half-commitment is no commitment at all. Manufacturing is a multi-industry sector, each with specific needs to facilitate production. Ergo:
- Tailor local manufacturing strategies to fit community attributes and assets. Develop a strategy that supports industries that fit. Communities in central California or western Colorado may be hard-pressed to develop a bioscience cluster, for example, but a short path to a more capable food and cannabis infrastructure is there for the taking. Western governors like Gavin Newsom and Jared Polis should also announce that the region is the new national epicenter for outdoor manufacturing, and charge economic development professionals with developing a supply-chain strategy to make it a reality.
- Recruit the necessary suppliers: Based on the strategy, begin recruiting service and supply-chain companies to provide needed resources.
- Do the math: Companies can assess the economics of reshoring with free tools like Reshore Initiative's Total Cost of Ownership Estimator. Local economic development professionals and policy officials likely have similar tools.
- Invest in Mexico: Nearshoring work to a country like Mexico is better than offshoring production to Asia. Let's focus on manufacturing Americas.
- By a factor of 10, increase the level of interaction between manufacturers, and between the remaining service and supply-chain assets currently behind the high walls of industry silos. It's a regional call to arms to locate resources and talent that's already in our communities. Manufacturers have been slow to share. The time is now.
Coronavirus is only the latest cause of heartburn for U.S. brands and companies manufacturing in Asia. How many more will it take to stir U.S. companies and policy leaders into action?
Let's lessen the odds of finding out.
Bart Taylor is publisher of CompanyWeek. Contact him at email@example.com.