The United States manufacturing industry’s employment levels peaked in the late 1970’s; however, since that time period off shoring of jobs has dominated and the manufacturing industry and employment levels as a whole have declined. In the past few years, though, there has been a significant move to “Re‐Shore” jobs within the manufacturing industry. We’re finding that some of the main reasons companies initially chose to offshore their production process are the same reasons why companies are bringing these jobs back to the United States.
- Production Cost Savings
- Control over the production process from start to finish
- Protecting Intellectual Property
- Political Climate and Employee Morale
- Tax Advantages
The total true cost of building a product oversees has increased over the past few years. Increases in transportation costs have been fueled by rising oil prices. Wages in developing countries remain lower than the United States counterparts; however, the wages rates increase in developing countries are very high compared to their United States counterparts, which have experienced very minimal percentage increases. Other costs associated with outsourcing are on the rise, including costs associated with defective shipments, as well as holding costs to meet supply demands.
Building products closer to home allows for more control over the process from start to finish. Companies are able to effectively manage their inventory levels using more just‐in‐time inventory production, which greatly reduces overhead and storage costs.
Quality control aspects can be monitored more closely, which reduces the defect rate. Additionally, if defects do occur, the time to correct and fix those items is greatly reduced.
As products are manufactured closer to operations, other departments can become more integrated in the entire process which can help promote company‐wide synergy. Marketing teams can work first hand with the products in both raw and finished stages to effectively promote campaigns based on a working knowledge of all stages of a product’s lifecycle. Research and development engineers can communicate ideas directly with production managers and assembly line workers, reducing the lead time needed to modify products to fix any design flaws. Engineers can go directly to the work site, and don’t need to travel across the world or wait for product specifications to be shipped back to their office.
The use of technology continues to be a major component within the industry, and protecting intellectual property has become even more important. The laws for counterfeit protection in developing countries tend to be less rigid than those in the United States and the costs to protect intellectual property on other countries can be almost completely eliminated by re‐shoring the manufacturing process.
In recent years, there has been an increased emphasis on the creation of jobs in the United States. Through re‐shoring, companies can actively promote that they are creating U.S. jobs while simultaneously helping to simulate local economies and recruiting high quality employees.
With manufacturing processes closer to home, key employees will also be able to spend more time in the U.S., as the need to take multiple trips to foreign countries will be reduced.
For the 2012 tax years and prior, there are additional tax benefits for manufacturing in the United States.
The IRC Section 199 (Domestic Production Activities Deduction) can be a significant Federal tax benefit for qualified manufacturing done here in the U.S. The deduction for 2010 and subsequent years is generally 9% of the lesser of qualified production activities income or taxable income. Prior to 2010 the applicable percentage was 3% (2005 & 2006) and 6% (2007 ‐ 2009).
The research and development credit (R & D) can be a significant credit for research performed in the U.S. The credit has been consistently extended over the years, most recently in the American Taxpayer Relief Act of 2012.
It’s prudent to be aware of several other incentives for manufacturing in the U.S., including: accelerated depreciation methods, Sec. 179 deduction and bonus depreciation for assets used in the U.S., the Small Employer Health Insurance Credit, and the Work Opportunity Credit.
California also has several credits available to manufacturers: the research and development credit (R & D) may be available for R & D performed in California, and employers can take advantage of the Enterprise Zone Credit, Work Opportunity Tax Credit, New Markets Tax Credit, and Sales & Use Tax Exemptions for Clean Tech Manufacturing. Local credits may be available as well.
Several other states, in addition to California, have credits including the R & D credit.
The economics and other benefits that were initially associated with off‐shoring continue to shrink, causing many companies to rethink their models. Through effective analysis and oversight, companies can determine if re‐shoring will save money in the long run, provide more support to their communities, and can potentially create a more positive work environment for all of their employees.
Franck, Dean, Harry C. Moser, and Marius Ronge. “The Economic Arguments for ‘Re‐shoring’ Manufacturing Jobs Back to the U.S.” https://reshoringmfg.com. N.p., 14 Jan. 2012. Web.
Haass, Richard, Klaus Kleinfeld. “Lack of skilled employees hurting manufacturing” https://usatoday.com. N.p., 3 Jul. 2012. Web. Davidson, Paul. “Some manufacturing heads back to USA” https://usatoday.com. N.p., 6 Aug 2010. Web.
Moser, Harry. “Strengthen U.S. Manufacturing and Lower Your Costs! Re‐Shore!” https://usatoday.com. N.p., 14 Jan 2012. Web.