Borchers provides insight into hot topic of presidential election
Lacey Klotz |
With the first presidential debate in the books and two more debates to follow this month, the question of how candidates will create more jobs for Americans by moving companies back to U.S. soil has remained a hot topic throughout the political season.
Andy Borchers, chair and professor of management, entrepreneurship and marketing at Lipscomb, says the term for such moves is “reshoring” and it is used to describe the act of bringing back offshored work in manufacturing and other industries to their native country.
“Reshoring is not a new phenomenon, but the practice gained a lot of attention in the 2012 presidential election, and has continued to grow in the 2016 election cycle,” said Borchers.
Borchers recently published an article with William White of the U.S. Air Force, titled “Motivation Behind Reshoring Decisions in Manufacturing,” in the Operations and Supply Chain Management: An International Journal. The article, describes how Borchers and White surveyed 300 manufacturing professionals in the U.S. to identify the factors considered most important and of greatest risk for manufacturers making reshoring decisions.
In the article, Borchers and White began with 29 motivating factors for reshoring. These factors have major implications for manufacturing location decisions and have significant business strategy implications. In the presidential election they have also become a contested political point.
Survey results confirmed what they expected, namely that cost is the single biggest motivation for outsourcing work outside the U.S.
“The good news for the southeast U.S. is that research by the Boston Consulting group shows our region to be second only to China for competitiveness in the industrialized world,” said Borchers.
“Our research also sought to discover which factors are the greatest sources of risks, and we discovered currency stability topped a list of risks to reshoring. For U.S. companies that are currently manufacturing abroad, these risks could motivate them to come back to the U.S.”
Borchers says there are four different narratives at play when it comes to U.S. manufacturers sourcing work. The first is, “yes, some work leaves the U.S., and will not come back. However, once gone it does not necessarily stay put. Shoes and clothing are examples of this narrative.
“There are a group of nations known as the ‘PC16,’ which stands for post-China 16,” said Borchers. “Experts believe these 16 countries are the likely ones to inherit work from China. These include nations like Vietnam, Bangladesh and some east African nations such as Uganda.”
Another narrative Borchers says occurs is, “there are some industries that have largely never left the U.S. and will likely never leave, such as oil refineries and chemical firms.”
The third narrative Borchers describes is the notion of reshoring, which he talks about in his article saying, “When companies return work to the U.S., they likely won’t return exactly the way they left. For example, some call centers have been reshored, but when they’ve returned may locate in low-cost, rural areas. General Electric has reshored appliance manufacturing, but in radically modernized factories.”
The final narrative Borchers says is politically popular but highly unlikely. “Through political might or tariffs, we persuade companies that they should bring their work back. Of course, they return the work to the exact same factories they left and they hire back all the workers they laid off.”
Borchers says that although there are a number of narratives at play, reshoring is never as black and white as we think. Companies are increasingly dynamic in making decisions about where work is to be done, and are constantly reevaluating their sourcing decisions.
One example of this is seen in U.S. automotive firms such as Ford. Ford has recently received criticism for plans to move more of its car production to Mexico. But what people may not realize is Ford has also moved its truck production from Mexico to the U.S. This makes sense, Borchers says, as car production is typically a low margin business, whereas truck and SUV production is high margin. In total, U.S. automakers have significantly increased employment and investment in the U.S. and Mexico.
Borchers says there is a lot of discussion about trade within the presidential election campaign and under what terms we should allow it. He says he believes that trade is generally good for the U.S. and finds that the biggest challenge that comes with trade is the relocation and retraining of displaced workers.
This is one topic Borchers has discussed with his operations and supply chain management class at Lipscomb.
“Global trade has grown dramatically and it is greatly facilitated through modern supply chains,” said Borchers. “In my class we talk about how standardized 40-foot containers and computer technology have revolutionized trade. With containerization and systems, shipping has become relatively cheap, and as a result firms have great flexibility in locating production.”
Borchers says although the concepts of reshoring seem simple enough to provide more jobs for American citizens, it is a very complex and ever-changing issue.
“In presidential debates and talks, candidates typically want to simplify things, and this whole business about sourcing and global supply is complicated and constantly changing,” said Borchers. “It is very difficult to summarize it in 30 seconds, but very important to recognize.”