Last month the Financial Times’ Gillian Tett met Inge Thulin, the Swedish-born chief executive of 3M, an American conglomerate at the Council on Foreign Relations in New York (below).
She reports that – though 60% of its revenues and 40% of 3M’s workforce are outside American shores – Mr Thulin, when discussing corporate strategy, prefers to talk about “localisation”:
“Our strategy has changed. If you go back [several] years, there was a strategy of producing at huge facilities at certain places around the world, and shipping it to other countries. But now we have a strategy of localisation and regionalisation. We think you should invest in your domestic market as much as you can.”
Instead of “free” trade, American executives are now calling for “fair” trade, along with “reciprocity” and “equalisation” of trade deals.
When Donald Trump started talking about restoring US manufacturing last year, he tapped into a subtle trend that was already emerging. As the West Midlands Producers’ site noted, the reshoring trend, successes and possible pinch points, have been systematically explored and publicised by Aston University’s Professor David Bailey since 2013; two years it quoted Professor Dr Michael D. Johnson, Department of Engineering Technology and Industrial Distribution, Texas A&M University, briefly in the FT:
“My colleagues and I have found that importing goods from China to developed countries (for example, the US) entails numerous increased costs: transportation, inventory carrying, and production and logistics oversight. The combination of these increased costs, just-in-time manufacturing needs, and increased developing country labour rates contribute to the economic viability of localised flexible manufacturing facilities serving developed country markets”.
Ms Tett recommends a survey of US companies conducted by the Boston Consulting Group which showed that as recently as 2012 American companies were busy building cross-border supply chains, 30% with China – but 31% in 2015 planned to boost production in America and only 20% in China.
- One reason for this shift is a rise in relative wage costs in China.
- Another is that production costs in the US have fallen because of automation and cheap energy.
- However, a third point is that chief executives have realised that long supply chains create political and logistical risks.
“The days of outsourcing are declining,” Jeff Immelt, General Electric chief executive, observed late last year. “Chasing the lowest labour costs is yesterday’s model.” even before Mr Trump arrived in office, the C-suite (slang: important senior executives) was losing its blind faith in globalisation. For better or worse, we face a more localised world”.