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 / Spring 2014 / Issue 74(originally published by Booz & Company)


America’s Real Manufacturing Advantage

For example, the Austrian steel-based technology and capital goods maker Voestalpine Group is building a new iron-ore plant on Corpus Christi Bay in Texas. Once it opens (scheduled for 2016), it will produce up to 2 million tons per year of hot briquetted iron (a feedstock for steel mills). The plant will use a natural-gas direct reduction process that is more environmentally friendly than the traditional coke-based technology and will help Voestalpine meet ambitious internal energy efficiency and climate-protection objectives. V&M’s tubular steel plant in Youngstown, Ohio, is another example. The plant uses low-cost gas, and supplies tubular steel to the expanding U.S. oil and gas industry for drilling.

Recent shifts in labor costs have also changed the competitive landscape. A 2013 analysis by the consultancy AlixPartners estimates that the cost of offshoring manufacturing to China will equal the cost of manufacturing in the U.S. by 2015. The large labor-cost advantage that Asian competitors enjoyed in the 1990s and early 2000s has narrowed over the last 10 years. When the higher productivity of North American workers (three times as high as that of workers at some low-wage competitors) and the often minor share of labor cost in the total cost calculation are factored in, the labor-cost advantage is insignificant.

These two forces—low-cost energy and labor equivalence—have significantly improved U.S. competitiveness. A study by the Information Technology & Innovation Foundation estimates that some 500,000 manufacturing jobs have been created in the country since 2010, supported in part by re-shoring in industries as varied as aerospace, appliances, autos, textiles, and toys. But changes in energy and labor prices are not likely to provide lasting advantage. Other countries will tap into their gas resources with similar technologies, and global trade in liquefied natural gas will inevitably increase, narrowing the price differential. The change in labor costs will most likely be moderated by increasing productivity in other regions, which will limit future improvements in competitive advantage for the United States.

Fortunately for the U.S., one other key trend driving the domestic resurgence of manufacturing is less likely to be shared. The MIT Forum for Supply Chain Innovation and Supply Chain Digest surveyed 340 supply chain managers in 2012, and found that in addition to costs, an important decision driver for those considering re-shoring is faster speed-to-market. Indeed, as corporate leaders make decisions about plant location, a key risk they face is uncertainty about future growth in demand. One way to reduce that risk is to locate manufacturing facilities close to markets, enhancing their ability to understand customer requirements and react quickly throughout the entire value chain when requirements change. Thus the U.S. will be favored for production that is slated for U.S. consumption.

To make the most of the manufacturing renaissance, however, the U.S. will also have to compete as a manufacturing location for high-value-added products designed for export. It is for this reason that the advantages the U.S. offers—as a base for the advanced, virtual-to-real manufacturing that is transforming the global industrial landscape—will become increasingly important. To understand why this transformation is so profound, it helps to look at how today’s advances fit within the historical context of manufacturing technology.

Efficiency, Innovation, and Flexibility

From its beginnings in the 18th century, the Industrial Revolution was all about efficiency and affordability. Previously, all goods had been made from scratch by craftsmen, who tailored each item—and often the process of making it—to the requirements and circumstances of each customer. But making things this way was expensive and slow. Few people other than the wealthy could afford to own much more than the simplest household objects and rudimentary tools.

Then, as industrialization advanced from the late 18th through the 19th century, the efficiencies enabled by steam power and mass production drove prices of manufactured goods to levels low enough to be affordable for the mass market. Manufacturing efficiency made a further leap forward in the 20th century with the advent of the moving assembly line, more systematic approaches to operations, and advances in technology.

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  1. Robert D. Atkinson and Stephen J. Ezell, Innovation Economics: The Race for Global Advantage (Yale University Press, 2012): Why the U.S. needs a coherent innovation policy to remain competitive, from two officers of the Information Technology and Innovation Forum.
  2. Peter Cappelli, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It (Wharton Digital Press, 2012): The director of Wharton’s Center for Human Resources makes a case for changing the way talent is developed, recruited, and retained.
  3. Kaj Grichnik and Conrad Winkler, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008): Former Booz & Company consultants show how top companies are reinventing themselves to compete in a new world.
  4. Andrew N. Liveris, Make It in America: The Case for Re-inventing the Economy (Wiley, 2011): The chairman and CEO of Dow Chemical makes the case for manufacturing in the United States.
  5. Gary P. Pisano and Willy C. Shih, Producing Prosperity: Why America Needs a Manufacturing Renaissance (Harvard Business Press, 2012): Two professors at Harvard Business School show why manufacturing really matters in an innovation-driven economy.
  6. Harold L. Sirkin, Justin Rose, and Michael Zinser, The US Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, 2012): Analysis and recommendations for U.S. manufacturing from the Boston Consulting Group.
  7. Vaclav Smil, Made in the USA: The Rise and Retreat of American Manufacturing (MIT Press, 2013): An authoritative history of U.S. manufacturing by a noted business historian and author.
  8. Gene Sperling, “The Case for a Manufacturing Renaissance,” speech delivered at the Brookings Institution, July 2013: The director of the National Economic Council discusses U.S. competitiveness in advanced manufacturing.
  9. For more thought leadership on this topic, see the s+b website at:
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