1. BOSTON CONSULTING GROUP AUGUST 2011 Made in America, Again

2. Will manufacturing return to the U.S.? Emerging factors that will close the gap for many goods consumed in the U.S.  Rising wages in China  High real estate costs in China  Higher U.S. productivity  Weaker dollar  Low real estate costs in U.S.  Higher transportation costs

3. China’s Dominance China became the default location for plants during the past decade:  Cheap labor  Growing number of engineers  Fixed currency  Inexpensive land, free infrastructure, generous financial incentives

4. China’s Dominance 2000-2009, China’s exports rose by a factor of 5 to $1.2 trillion annually. Became substantial producer in world markets for:  Apparel (32% of world market)  Furniture (26%)  Telecom equipment (28%)  Office machines and computer equipment (32%)  Ships (19%) The U.S. lost 6 million manufacturing jobs, closed tens of thousands of factories during same period.

5. Manufacturing Again? Though employment fell, manufacturing output in the U.S. actually grew during the last decade by one- third due to productivity gains. Due to higher U.S. productivity, and rising wages in China, China’s cost advantage is dissipating: sometime around 2015, manufacturing will be just as economical in the U.S. as in China. The reallocation of new production to low-cost states (such as Tennessee) has just begun.

6. New Manufacturing Math China’s wage rates are growing rapidly, up 150% 1999-2006. Wages rose 19% annually 2005-2010. And wage growth is faster than productivity growth in China. Manufacturing wages rose just 4% annually in the U.S.

7. New Manufacturing Math

8. Tide is Turning Which manufacturing industries will benefit? Those in which labor costs are small compared with total costs, and those producing relatively low quantities of goods.  Auto parts  Construction equipment  Appliances

9. Tide is Turning Which manufacturing industries will NOT benefit? Those in which labor costs are high compared with total costs, and those producing relative high quantities of goods.  Apparel  Shoes  Furniture

10. Other Costs Prices are surging in China:  Price of electricity up 15% since 2010.  Coal prices, utility rates rising.  Industrial land no longer cheap; $10.22 sq ft in China, compared with $1.30 - $4.65 sq ft in Tennessee.  Shipping rates are rising: rising fuel costs, scarcity of ships, and shortage of container port capacity.  China’s currency is slowly appreciating v the U.S. dollar.

11. China’s Future Will remain a global manufacturing power. Multinational companies will not pull out of China, but will orient production to serve local and Asian markets.

12. U.S. Future Companies should evaluate carefully where to locate new plants; China should no longer be the default option. Wage costs differences are still large but narrowing. Productivity, transportation costs, energy, and other expenses are very important considerations. U.S. will be increasingly more attractive for low- labor content goods that are sensitive to transportation costs.