The Future of American Manufacturing: Strategy and Reshoring

Introduction

One bright spot in the otherwise dreary prognosis for 2020 is that COVID-19 increased interest in reshoring — that is, bringing manufacturing back to America (Thomas Industrial Survey, 2020). Coupled with tensions from the trade war with China under the Trump administration, returning manufacturing to the Western hemisphere appeared a more enticing prospect than it had in years past. Two in three manufacturers indicated that they were likely to reshore, with most of that interest coming from the agricultural, food and beverage, and energy sectors (Thomas Industrial Survey, 2020).

Automation is also playing a part in the outlook for American manufacturing (Nager, 2017). On the one hand, Rose (2019) suggests that the U.S. needs to embrace automation if it wants to regain its competitive manufacturing edge over other nations. On the other hand, if more and more jobs are lost to automation, reshoring may not matter much to workers — or to owners, who will likely consider tax brackets, supply chain management, and proximity to market as the key factors in deciding where to locate manufacturing in the coming years (Sirilertsuwan, Ekwall, & Hjelmgren, 2018).

Regardless, Sir James Goldsmith advocated for reshoring and opposed offshoring on moral and socio-economic principles, arguing that when manufacturing jobs are sent away the populace at home becomes disconnected from the product and the company that produces it (Gladwyn, 2010). Without this connectivity, there is no genuine sense of being a stakeholder and no genuine interest in having a working relationship with the manufacturer when other options are easily available in the globalized world. From that position, the future of American manufacturing depends entirely on what company owners want: do they want a future in which there is a relationship between themselves and stakeholders? Or do they want a future that focuses solely on the bottom line, without any sense of duty or loyalty to any one place or people? The answers to these questions will determine the future of manufacturing in America. This paper explores them by examining real-world management problems, strategic management issues that drive firm performance, the challenge of penetrating and dominating a business market, corporate growth strategies, and international diversification.

Real-World Management Problems

Real-world management problems for American manufacturers encompass supply chain management, market penetration, and labor costs. Offshoring of manufacturing at the end of the twentieth century occurred primarily because foreign labor was far cheaper than American labor. Today, with the middle class severely weakened by COVID-19 lockdowns, it may become the case that a new class of lower-wage workers will be all that remains of what was once a prosperous middle class. If that turns out to be so, American manufacturing may return. Labor costs are still low in Asia, but supply chain management has grown more difficult due to the trade war and the fallout from COVID-19. Preparing for the unexpected is a real-world management problem that could be partially alleviated if manufacturing were not conducted on the other side of the world. Bringing manufacturing home to America could at least partially relieve supply chain pressures.

There is still the problem of market penetration, market saturation, and finding consumers for the products that manufacturers have to sell. Even for American manufacturers already operating domestically, getting goods to market and identifying viable markets is seen as a major challenge. India, Africa, and China represent three of the largest relatively untapped markets today — but penetrating them is difficult because all three are nationalistic and consumers in each tend to prefer goods produced within their own borders. Wealth distribution in these nations is also a barrier: not everyone can afford Western products, as companies like Starbucks have learned in their attempts to penetrate the Indian market. Others, such as McDonald's, Pepsi, and Coke, have had to substantially adapt their offerings to satisfy consumers there.

Manufacturing in America will thus inevitably have to address the realities of the global marketplace. Unless a manufacturer is operating and selling wholly domestically, these problems will be very real. For domestic manufacturers that do not seek to penetrate foreign markets, different real-world problems arise — including government regulations, market demand, and access to or maintenance of available resources. Managing competitive advantage in crowded industries is also a going concern. Tesla, for example, now has a factory in China and is building one in Germany, yet remains primarily a U.S.-based corporation; managing manufacturing in America is difficult because the electric vehicle space has grown more competitive as new players have entered the market. COVID-19 also disrupted workflow, briefly forcing Tesla to close its Fremont factory. Managing supply chains and joint venture agreements adds further complexity. Manufacturers must look at cost, resources, shipping, supplies, regulations, taxes, labor, competitive advantage, cash flow, productivity, debt, opportunities for improvement, threats to the organization — including the threat of substitution and new entrants — as well as strengths, weaknesses, and the bargaining power of customers and suppliers. SWOT analysis, PESTEL analysis, and Porter's Five Forces are all tools that manufacturing managers can use to better understand the real-world problems they face. However, the primary driver of firm performance remains strategic management.

Strategic Management Issues That Drive Firm Performance

Among other things, strategic management focuses on internal and external analysis. Internal analysis enables managers to evaluate the worth of an organization's assets, the qualities of its labor force, and the production and performance of its workforce. External analysis focuses on evaluating the environment in which the company operates. American manufacturers must conduct both in order to strategically manage the issues that drive firm performance.

Performance is shaped by internal and external factors — including whether resources are available for manufacturing, whether the labor pool contains the talent needed to operate manufacturing equipment, and whether performance meets required benchmarks. External factors such as shifts in the political landscape, economic developments, and changes within the industry (regulations, competition, and so on) all influence how managers must strategize.

The extent to which resources are accessible will determine the extent to which a company can achieve its manufacturing goals. Resource scarcity, in turn, determines the degree to which a company can establish competitive advantage. If a manufacturer controls a critical resource, it will hold substantial competitive advantage over the market. In America, dominance of resources has occurred — notably in the information industry — but in manufacturing it is less common for resource scarcity to be a decisive issue.

Manufacturers in America must also conduct value chain analysis to understand how it can help establish customer value. Resources must be inbounded, and processes and operations managed effectively and efficiently without driving costs too high. Distribution must be managed, products marketed, and customer service maintained — although some firms, like Tesla, have moved away from traditional customer service almost entirely, a trend that does not foster strong customer relationships. Nevertheless, many U.S. consumers in the COVID era have prioritized product availability over service quality, a dynamic that firms appear to have sensed and exploited by trimming customer service to enhance the bottom line.

Manufacturers in America will need to conduct an internal audit of resources and organizational capabilities in order to project the firm's future. Key questions include: Will resources be available for the workforce in the future? Will they become scarce and unobtainable? Specific criteria should guide these questions — such as whether the firm actually possesses the resources in question, whether those resources confer competitive advantage, whether they are controlled or in scarce supply, whether they enable the creation of customer value, and whether competitors can easily replicate the production process and enter the market. All of these are considerations that manufacturers must carefully weigh.

Conclusion

The future of manufacturing in America faces real challenges, but 2020 may have been a turning point. COVID-19 demonstrated to many firms that reshoring manufacturing to America could prevent the kind of disruptions experienced during the pandemic. Shipping bottlenecks, supply chain fragility, and tariffs arising from trade wars are all challenges that could be mitigated by expanding domestic manufacturing. Yet new challenges remain — most notably higher domestic labor costs. At the same time, emerging employment trends suggest that as more workers are displaced, labor costs may eventually decline. Identifying these trends and conducting thorough internal and external analyses are precisely what strategic management of American manufacturing requires for the future.

References

Gladwyn, J. (2010). Don't Tread on Me: Essays on How the Media and Congress Plan to Destroy our Republic. Mill City Press.

Nager, A. (2017). Can US manufacturing be made great again? Retrieved from https://www.industryweek.com/the-economy/competitiveness/article/22001153/can-us-manufacturing-be-made-great-again

Rose, J. (2019). How can the US regain its manufacturing edge? Retrieved from https://knowledge.wharton.upenn.edu/article/future-of-us-manufacturing/

Sirilertsuwan, P., Ekwall, D., & Hjelmgren, D. (2018). Proximity manufacturing for enhancing clothing supply chain sustainability. The International Journal of Logistics Management, 29(4), 1346–1378.

Stillwell, M. (2018). The future of American manufacturing. Retrieved from https://www.popularmechanics.com/technology/infrastructure/a20066511/american-manufacturing/

Thomas Industrial Survey. (2020). COVID-19's impact on North American manufacturing. Retrieved from