Chapter 7 HEADLINES: Caterpillar Joins “Onshoring” Trend

Some American companies have found it advantageous to take activities they had previously shifted overseas and move them back home, in what is called “onshoring.”

Caterpillar, Inc. is considering relocating some heavy-equipment overseas production to a new U.S. plant, part of a growing movement among manufacturers to bring more operations back home—a shift that will likely spark fierce competition among states for new manufacturing jobs. The trend, known as onshoring or reshoring, is gaining momentum as a weak U.S. dollar makes it costlier to import products from overseas. Manufacturers are also counting on White House jobs incentives, as well as their ability to negotiate lower prices from U.S. suppliers who were hurt by the downturn and willing to bargain.

After a decade of rapid globalization, economists say companies are seeing disadvantages of offshore production, including shipping costs, complicated logistics, and quality issues. Political unrest and theft of intellectual property pose additional risks. “If you want to keep your supply chain tight, it’s hard to do that with a 16-hour plane ride from Shanghai to Ohio,” said Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, a public policy and economics research group in Arlington, Virginia.

General Electric Co. said last June it would move production of some water heaters from China to its facility in Louisville, Kentucky, starting in 2011. A GE spokeswoman said a 2005 labor agreement under which new employees would be paid $13 an hour, [instead of the] nearly $20 an hour [they once made], “enabled us to be more competitive.”

Source: Kris Maher and Bob Tita, “Caterpillar Joins ‘Onshoring’ Trend,” The Wall Street Journal, March 11, 2010, p. A17. Reprinted with permission of The Wall Street Journal, Copyright © (2010) Dow Jones & Company, Inc. All Rights Reserved Worldwide

Questions to Consider

After reading Caterpillar Joins "Onshoring" Trend, consider the question(s) below. Then “submit” your response.

Question

1. Given shipping costs are cited as a reason for Caterpillar’s “onshoring”, what other companies or industries would you expect to also be considering “onshoring”?
Any company that manufactures large/heavy goods, e.g., airplanes. Boeing is a good example of this as they have “onshored” some of their production recently.

Question

2. What will be the likely impact of “onshoring” on the countries with which Caterpillar previously sourced their manufacturing (e.g., China)?
Loss of manufacturing jobs in these countries. A student may also answer that if the country such as China has stipulated that when the offshoring initially occurred, there would have to be some technology transfer, then there remains some facility for the development of that industry by domestic investors in China.