Factors that have Shaped Trends in the Location of Manufacturing Jobs
The geographical location of any business enterprise depends on the availability of four cardinal factors of production. These factors are labor, land, capital, and raw materials. Apart from these factors, availability of a market for the goods produced within the vicinity of the production facilities may also influence the location of manufacturing enterprises. Furthermore, business climate offered in the geographical location, which may include aspects such as established legal framework and political stability also influence manufacturers’ willingness to locate their facilities in a particular geography. This essay expounds on the determinants of location by discussing the reasons why manufacturers are shifting their manufacturing location from China back to the US.
For the past 30 years or so, most manufacturing companies opted to establish their manufacturing plants in China. Such decisions were made based on factors such as availability of cheap labor, undervalued Chinese currency, a fast and efficient cargo delivery service, and a foreign policy that offered incentives to foreign investors. However, in the past two years, most of the factors that served to attract the establishment of manufacturing plants in China began to turn into limiting factors and the situation keeps worsening to date. Suddenly, manufacturing in China has become more expensive; the labor force has suddenly turned choosy, the wage rate has risen, and the currency is no longer being devalued (Fallows 3). These new developments have led to manufacturers to seek new areas for their entities’ location, which has led to increasing trend to relocate manufacturing businesses back to the US.
The cost of doing business in China has increased. This can be attributed to the fact that the living standards of the employees has also increased. High turnover recorded in a production company such as Foxconn has forced the manufacturer to revise the salary wages upwards. Cheap labor was one of the factors that had attracted most companies to set shop in China. The social and economic maturity being witnessed in China means that most of the low paying jobs will have to be outsourced to other low-wage economies like India, Burma, and some parts of Africa (Fallow 7). Such increase in wages implies that China has started losing its attractiveness for investment.
A shift of manufacturing from China to USA is inspired by factors that include presence of ready global market, availability of local talents, and improved technology that allow the spinning of ideas into tangible products within short periods. These factors work jointly to inspire manufacturers to consider setting their manufacturing plants in the US. Another advantage of bringing manufacturing plants back to the US stems from the need to connect the entire manufacturing cycle. This cycle is thought to start from an idea to the conceptualization of the idea via a technology such as 3D printing (Fallow 9). In such a way, entities can have better control of their manufacturing processes so that they can respond to changes in the market in time.
The modernized manufacturing process starts with an idea of the product, which follows a series of sequential process. The product idea is passed on to the industrial design department, if the design passes the factory experience and is in line with the process engineering, then the product idea will either be approved in its entirety or it will be modified to fit the real world environment (Fallow 11). This sequential process of refining a product idea is only possible in a place like the US where the technology exists to expedite the process.
A look at the six essential factors that determine the geographical location of manufacturing plants will reveal the reasons why most manufacturers are shifting their operations from China to the US. These six factors determine whether a manufacturer’s operations will be profitable or not. These factors entail labor availability, adequacy of services, business climate, access to markets, access to components and raw materials, and the quality of life and the environment. These factors are discussed hereunder:
Adequacy of Services
Manufacturing is made possible by the presence of both infrastructure and support services. Critical infrastructure include courier services, transport, telecommunication links, and electricity. Support services include engineering and financial services. The availability of these services within the locality is an important determining factor for the location of a manufacturing plant. Evidently, these services are more abundant in the US as compared to China. The Silicon Valley is well endowed with infrastructure and other support services. A shift of manufacturing plants from China to the US helps the manufacturer to cut down on cost as they position their plants within close proximity to the vital services that they need (Hanink 1).
Availability of Labor
All manufacturing processes require adequate and sufficient labor. Some manufacturing processes require abundance of low skill labor while others require a few specialized labor. Manufacturing plants whose processes are labor intensive will require a steady supply of abundant and reliable labor force. The advent of improved manufacturing technologies has seen a shift of most operations from the traditional labor-intensive processes to a modern mechanized production processes. This shift in technology makes the US more attractive than China (Fallow 4). The US can afford technological advancements needed to automate manufacturing processes. Manufacturers are also attracted to the US because of the availability of cheap labor from the many immigrants who come to the US. The high cost of labor that has characterized the Chinese labor market has served to dissuade most manufacturers from setting their facilities in China and have opted to set their production plants in the US (Hanink 1).
Access to Markets
Manufacturers demand to have their production plants close to the market for their products. In the past, China offered incentives, which attracted manufacturers to establish their manufacturing plants in the country (Hanink 3). These incentives included devalued currency, cheap and fast cargo, and freight services. These services worked jointly to ensure that products reached the markets in Europe and the US in record time. However, the disappearance of these services has led manufacturers to rethink shifting their manufacturing processes to the US. Manufacturers that bring their processes to the US stand a chance of accessing ready market for their products. Most of the manufactured products from companies such as Foxconn are destined for the US market (Fallow 6). The delays in product delivery from China may mean a loss in sales opportunities for the manufacturer. In this regard, manufacturers have opted to shift their operations to the US. This move helps them offload their products to the markets at a faster rate than they did when plants were located in China.
Prevailing Business Climate
The nature of the business climate is determined by the government. The government creates and sustains a conducive business climate. A good business climate will attract manufacturers while a bad one will repulse them (Hanink 3). Good business climate is characterized by enabling legislations, encouragement of foreign direct investments, and low taxes. A bad business climate is created when there are prohibitive laws, and high taxes. The attitude taken by the Chinese government against foreigners has served to repulse manufacturers from setting up their manufacturing businesses in the country. The manufacturers have since decided to take their businesses to the more welcoming US environment.
Access to Components and Raw Materials
Changes in manufacturing processes have made this factor to be of least effect. Today, raw materials and components can be mined and shipped to manufacturing plants that are located close to the markets. The US is the preferred manufacturing location because of its accessibility to markets (Hanink 4). The high infrastructural investment makes it possible for manufactures in the US to import raw materials and components needed to produce the products that they sell to the market. Manufacturers in the US can save resources by importing components and raw materials instead of establishing their plants in places with the abundance of these components and raw materials.
Quality of life and the Environment
Traditionally, China was attractive as a manufacturing location because of the low quality of life that its populace had. However, an increase in quality of life has seen China become too expensive for foreign manufacturers (Hanink 4). Higher quality of life means a higher wage rate for the employees. This cost is passed on to the manufacturers who are not willing to incur additional cost. Consequently, the manufacturers opted to transfer their manufacturing plants to the US where the costs due to high wages are offset by savings in aspects such as transportation of the products to the market. Additionally, China’s environmental sensitivity has served to impose stringent environmental requirements that add extra cost to the manufacturers. Manufacturers displeasure with these additional costs has caused them rethink the location for their production plants.
Traditionally, China was the preferred location for most manufacturing companies. This was because there were favorable conditions that favored the location of manufacturing companies in the country. Factors such as low cost of living, devalued currency, efficient cargo services served as incentives for most manufacturers. However, with the turn of the 21st Century, manufacturing in China has become too expensive to manufacturers who have now been forced to locate their manufacturing plants in the US. This shift of manufacturing location has been motivated by the factors that include adequacy of support services, availability of labor, and access to markets.
Work Cited
Dean Hanink. Principles and Applications of Economic Geography: Economy, Policy, Environment. New York: John Wiley and Sons, 1996
James Fallows. Mr. China Comes to America. The Atlantic. Retrieved from <http://www.theatlantic.com/magazine/archive/2012/12/mr-china-comes-to-america/309160/1>
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