Wisconsin Manufacturing Industry Survey Results:
Reshoring: Is your manufacturing business
bringing operations back to the U.S.?
Despite losing a tremendous number of manufacturing jobs to low labor
cost countries over the past two decades, the United States’ manufacturing
industry remains one of the world leaders in advanced manufacturing and
innovation. According to the Congressional Research Service Report issued
March 17, 2015, the U.S.’s value-added manufacturing was $2,029 billion in
2013 compared to $2,741 billion for China. However, Japan, the third largest
country with $917 billion, lagged significantly behind the U.S. in value-added
manufacturing.
Wisconsin has the second highest manufacturing concentration of any state
in the U.S.* According to the Wisconsin Economic Development Corporation’s
“Manufacturing by the Numbers” report, Wisconsin manufacturers produced
nearly $50 billion worth of output in 2013. Foreign sourcing of product
has helped many U.S. manufacturers remain competitive, and thus has
contributed to U.S. manufacturing success.
However, much discussion lately has suggested the tides may be changing
with respect to the pace of foreign sourcing of product. We asked executives
of mid-size manufacturing companies based in Wisconsin to share their view
on this subject, and its specific impact on how they manage their businesses.
This report is a summary of their responses, comments, and suggestions.
Read on to learn about the results of our survey.
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* Source: U.S. Department of Labor Bureau of Labor and Statistics’ Quarterly Census of Employment and Wages, June 2014
All survey results © Schenck SC 2015.
Wisconsin Manufacturing Industry Survey Results: Reshoring
Profile of respondents
A total of 81 manufacturers responded to the survey.
Which manufacturing sector best describes your business?*
As shown, the respondents represent a diverse cross-section of
manufacturing, with an emphasis in the metals and machinery sector.
Electrical or
computers
5.0%
Metal, machinery, foundry
47.5%
Paper & printing
16.3%
Transportation
1.3%
Wood
manufactured
products
Plastics
6.3%
12.5%
Other, or not
designated
3.8%
Food & beverage
7.5%
* May not total 100% due to rounding.
What is your annual revenue?
Annual revenue
Number
Our respondents include companies with sales ranging
from less than $1 million to over $500 million, with
more than 40% concentrated within the $15 million to
$50 million range.
$1 million or less
5
$1 million to $2.5 million
2
$2.5 million to $5 million
9
$5 million to $15 million
27
$15 million to $50 million
21
$50 million to $250 million
13
$250 million to $500 million
0
More than $500 million
2
Chose not to disclose
2
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June 2015 • 2
Wisconsin Manufacturing Industry Survey Results: Reshoring
Reshoring efforts
Does your company currently source components to foreign manufacturers?
Yes 27.2%
Percentage of foreign-sourced components to
total product cost?*
For almost three quarters of the respondents who
foreign source components, the foreign made
components make up no more than 20% of the
respondent’s product total costs. This indicates
that the bulk of the respondents’ product
costs are still domestic-based costs, most likely
generated by more value-added manufacturing
activities, a trend supported by our experience
working with manufacturing clients. This is also
consistent with the data from the Organisation
for Economic Co-operation and Development,
which shows that domestic value added accounts
for a comparatively high proportion of the value
of U.S. manufactured exports. U.S. manufacturers
use a low proportion of imported inputs and a
high proportion of domestically produced inputs,
compared to manufacturers in other countries.
Has your company “reshored” all or a portion
of your foreign sourced components to U.S.
or Mexico?
Almost a quarter of the respondents either have
already reshored manufacturing, or they are
analyzing the possibility. Although this may be
interpreted as a reshoring trend, interestingly,
the survey also indicates 18% of respondents are
considering increasing their foreign sourcing of
product. From a macro perspective, reshoring
may be offset by other foreign sourcing growth.
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No 72.8%
More than 80%
13.6%
60% – 80%
4.5%
40% – 60%
4.5%
20% – 40%
4.5%
Nominal – 20%
72.7%
* May not total 100% due to rounding.
No, but will be considering
in near future
4.5%
Yes, we have
18.2%
No, plan to increase
foreign sourcing
18.2%
No
59.1%
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Wisconsin Manufacturing Industry Survey Results: Reshoring
Rank the factors driving your consideration to reshore
Respondents clearly communicated customer delivery schedules and transportation costs are the leading reasons
for reshoring, followed closely by quality issues. Foreign sourcing manufacturing requires intensive scheduling and
quality control. The trends in manufacturing in the U.S. to more advanced manufacturing with shorter lead times,
smaller runs and higher precision needs presents critical challenges to sourcing product offshore.
1
Delivery timetables
1 (tie)
Transportation & shipping costs
3
Quality issues
4
Intellectual property concerns
5
Inventory costs
6
Engineering collaboration
7
Language barriers
8
Increasing foreign labor costs
9
Foreign currency risks
10
Better domestic automation
11
Domestic capacity availability
12
Patriotism
13
Foreign Ccorruption
14
Cost overruns
14 (tie)
Lower domestic natural gas energy costs
How much would additional U.S. tax incentives to
reshore influence your decision?
Interestingly, tax incentives appear not to be a driving force
in a company’s decision to reshore manufacturing. Only 17%
of respondents indicated that U.S. tax incentives are highly
important to their decision to reshore or not. Respondents’
answers to the next survey question shed some light on more
pressing reshoring factors. However, those few respondents
who did indicate that tax incentives are highly important to
their consideration to reshore consistently communicated
their concerns with the high income federal tax rates, and the
costs of complying with the Affordable Care Act regulations.
Recently enacted Wisconsin manufacturing tax incentives
were applauded by a respondent.
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Highly important
16.7%
Important
33.3%
Not at all
50%
June 2015 • 4
Wisconsin Manufacturing Industry Survey Results: Reshoring
Rank your obstacles to reshoring
Consistent with existing knowledge, the respondents’ number one obstacle to reshoring is higher labor costs in the
U.S. Looking at it from a different angle would show that labor costs are the leading reasons why U.S. manufacturers
foreign source product. Also, foreign manufacturers often do not face the same degree of regulatory challenges as U.S.
manufacturers, including environmental and health care regulations. It is interesting to note that respondents rated lack
of skilled labor in the U.S. as the third leading obstacle to reshoring manufacturing.
Higher labor
costs in U.S.
Lack of skilled
labor in U.S.
Lack of
specialization in U.S
Global competition
(i.e., margins)
Regulatory
constraints in U.S.
Capital for
expansion in U.S.
Energy costs
in U.S.
Unions
Other
Skana Aluminum, a privately-held aluminum manufacturer in Manitowoc, WI, regularly competes against foreign product in the marketplace. According
to Skana’s chairman and CEO, Tom Testwuide, Sr., the keys for a domestic manufacturer to successfully compete against lower foreign prices are to operate
an efficient plant, produce consistent quality, and always meet customers’ shorter delivery requirements. As an owner of a prior company with operations in
China, Testwuide knows and understands the manufacturing environment in China, and gets the advantages and disadvantages of foreign-sourced product
brought to the U.S. marketplace. In his industry, he sees the prices of competing product produced in China often fluctuate, primarily from frequent deviations
in the China value-added taxes, which can be as high as 17% of the product price. These price fluctuations, along with quality and delivery concerns, can
cause significant production issues with customers. Testwuide observes U.S. auto manufacturers moving or reshoring production to Mexico, with advantages
to them of being closer to home but with lower wage costs. Likewise, some suppliers to the auto industry are following the auto manufacturers to Mexico
as well. Although Skana exports products to Mexico and Canada, Skana continues to produce all of its product domestically, and in fact has strategically
expanded its operations within the U.S., with significant weight afforded to proximity to customers and available production facilities. Testwuide applauded
local and Wisconsin state government for their huge support five years ago when he and an investor group acquired the assets of the predecessor to Skana.
Their support was instrumental in keeping 150 jobs in Wisconsin.
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June 2015 • 5
Wisconsin Manufacturing Industry Survey Results: Reshoring
Respondents’ comments, recommendations, and observations
In response to the question “Which current tax incentives are important to you?” respondents commented:
“Lower corporate tax rates”
“State business and state overall tax reductions”
“Need to reduce cost of Affordable Care Act”
“Any incentive that would flow through to S Corporation shareholders”
“50% first year bonus depreciation”
“Federal Domestic Production Activity Deduction”
“None. We are already stuck with the highest corporation tax in the world…the deck is stacked against small and medium…companies”
Other respondents’ comments included:
“…increased taxes and government costs are…making foreign sourcing more competitive…”
“Costs of semiconductors and electronic components is at least 30% higher in the U.S…Foreign-sourced fabricated sheet metal enclosures cost 1/3 of U.S. prices,
including transportation and duties. We plan on significantly increasing the amount of subassemblies imported from India.”
“Once the supply chain is established, it is difficult to re-establish the supply chain locally.”
“I believe the biggest obstacle to reshoring is the low wages that other countries pay their workers. These wages do not compare/meet the US standard for
the poverty level of U.S. citizens & what is considered to be a fair wage in this country. Also, other countries do not have the government regulations for their
businesses as do U.S. companies in regard to safety, health insurance, taxes, etc.”
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June 2015 • 6
Wisconsin Manufacturing Industry Survey Results: Reshoring
Services for manufacturing clients
• Accounting, assurance and tax solutions
• Research and development tax credit
• Export incentives
• Expansion and job growth incentives
• Sales and use tax exemptions for
manufacturers
• Plant cost segregation studies
• Business management software—needs
analysis, selection, implementation,
training and support
• Bar coding and shop floor automation
• Electronic data interchange
• Production and inventory control
• Operations management
• Continuous improvement / Lean
• Human resources consulting
• Industry benchmarking
• Lean manufacturing
• Inventory costing consulting
• Global resources and connections
• Mergers and acquisitions
• Manufacturing CFO roundtables
Contact Schenck
Our professionals understand the demands of the manufacturing
environment from the shop floor to the board room, and can help you
discover the keys to greater profitability and optimum efficiency.
For more information on how Schenck can help your business,
contact any of our Manufacturing team leaders.
Brad Frank, CPA
920-455-4143
[email protected]
Karin Gale, CPA, CM&AA
414-465-5533
[email protected]
Don Kossow, CPA
414-465-5604
[email protected]
Dan Koszalinski, CMA, CPA
920-996-1495
[email protected]
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Appleton • Fond du Lac • Green Bay • Manitowoc
Milwaukee • Oshkosh • Sheboygan • Wausau
All survey results © Schenck SC 2015