Sathish:
“What industries are actually moving on reshoring right now?”
Rosemary:
“Across the board, companies are interested in reshoring. Our surveys indicate it is a topic of interest at most board meetings. But some industries are ahead of others. Semiconductors are definitely coming back, largely based on the CHIPS and Science Act funding. These are billion-dollar operations with a lot of automation, and they take five to ten years to build. We are seeing factories being built in Arizona, New Mexico, Idaho, Texas, Ohio, and upstate New York. It will never satisfy all our semiconductor requirements, but it is a bright spot. Pharmaceuticals are another focus. During the pandemic, it was discovered that we do not make any building block pharmaceuticals for antibiotics. If we could not get precursors from China and India, we essentially could not make antibiotics for the US. That was very scary. And the infrastructure act funded the redevelopment of electric vehicles and batteries. So what is coming back are advanced industries that have received government funding. However, the bad news is that manufacturing has been absolutely flat in the last year. Little to no growth in jobs for over a year.”
Sathish:
“What is the biggest misconception about reshoring?”
Rosemary:
“There is a lot of talk by politicians that all this manufacturing is coming back and tariffs are going to make companies set up here. That is truly a misconception. It is not that easy. You may not have enough funding to build a billion-dollar factory. Our infrastructure is poor. Our ports are behind in world technology. The electrical grid is a huge problem. An investment banker from New York told me that even if we built a thousand new factories, there is no electricity to support them. Data centers are already straining the grid. We do not have workers skilled in the right areas. We are not going to bring back 35-cent-an-hour t-shirt production. We cannot make an economic case for that. What does come back has to be more sophisticated manufacturing requiring a different skill set, and we have a shortage of those skilled workers. Most companies have the will to invest in US manufacturing. But the will is not enough. You also need the electrical grid, the infrastructure, and the workforce.”
Sathish:
“Have tariffs been effective in driving reshoring?”
Rosemary:
“We did a survey for the state of New York a couple of months ago. They wanted to know how tariffs were affecting manufacturing investment. We interviewed 18 C-level executives across 16 industries across the US. We asked them: Are you making investments because of the tariffs? To a person, every executive told us they were doing nothing. It is too difficult to make a decision in an unstable environment. They would like to move manufacturing back, but until the tariffs stabilize and the direction becomes clear, they are not building anything and not hiring anyone. That was a surprise to me. I thought we would find at least a few who were reshoring. But I also think it represents a lot of pent-up demand. Once things stabilize enough to make a clear decision, I think we will see more investment. But right now, everything is on hold.
“
Sathish:
“Is Mexico replacing China as the primary manufacturing destination?”
Rosemary:
“About 80% of the companies we work with are interested in Mexico. The advantages are significant. They are relatively sophisticated. Proximity to the US means you can drive across the border instead of putting things in ocean containers. Under USMCA, if the product originates in Mexico with Mexican parts and labor, you can bring it into the US duty-free. In China, you may have an 80% tariff. In Mexico, it is zero. Wages are very low, around $3.12 an hour, minimum wage. The industrial base is being built rapidly, particularly in the automotive. Tesla has a brand new Gigafactory in Monterrey. And the new president, Claudia Sheinbaum, is very pro-business and has suggested building up to a hundred industrial parks. Overall, companies are adopting a China-plus-one or China-plus-two strategy. China plus Mexico. Or China plus Vietnam plus the US. Manufacturing in multiple locations instead of putting all your eggs in one basket.
“
Sathish:
“How does automation determine whether a product can be manufactured in the US?”
Rosemary:
“If your product has more than 50% labor, there is no way you can make the case for manufacturing in the US. You have to look for a low-cost environment. However, if you can extract that labor and automate processes, then it is possible. The more you automate, the more you extract labor, the more chances you have to build manufacturing in the US. If you make men’s shirts, there is a lot of labor involved. Sewing on collars, sewing on sleeves, people sitting at sewing machines. More than 50% of the value is based on labor. You need a low-cost environment for that. But if you make the textiles for the shirt, textile production is fully automated. Walk into a textile factory, and there are no people there. Just machinery. We have seen textile growth in the Carolinas, Alabama, and Mississippi. But thousands of people sitting at sewing machines? That is not coming back.
“
Sathish:
“What role is AI playing in manufacturing and supply chain right now?”
Rosemary:
“The global supply chain is very data-intensive. You are always looking at products, quantities, movements, suppliers, shipment timing, and production schedules. AI is a perfect match for that. We are seeing very rapid adoption in forecasting, planning, tracking, tracing, and notifications when parts are not moving. Most supply chain software now has AI components built in. We are working with a machine shop in Morgan Hill, south of San Jose, that is using heavy applications of AI for predictive maintenance. The CEO told us: if you do not plan for maintenance of your machines, the machine will do it for you. It will break down. Predictive maintenance is one of the holy grail applications in manufacturing.
In terms of job impact, I think we will see some job elimination, but it will be somewhat minimal for the next five to ten years. It is more likely to require a change in skills. Supply chain jobs are not going away. They are changing into something different.”
Sathish:
“What steps should a manufacturing executive take to evaluate reshoring?”
Rosemary:
“First, evaluate a costed bill of materials. Understand how much labor is involved. If you have a lot of labor, you need a low-cost environment. That is the first decision point. Second, look at risk. The pandemic opened everyone’s eyes to how risky concentrated global supply chains are. Understand where in the world you could manufacture and why. Are you close to your markets? Are you looking for low-cost or sophisticated engineering? The decision used to be simple. A CEO would say, ” Get me to China. Today, that same decision involves many more variables. Not just cost, but where is your market growth? What is the geopolitical situation? How does climate change affect where you manufacture? AI is being used to help with these much more sophisticated decisions.”
