This month's featured article
Challenges on the Road toward Reviving Manufacturing: Japanese companies lagging in localization
MOTOHASHI KazuyukiFaculty Fellow, RIETI
A growing number of American manufacturers are reshoring production to the United States from China and other overseas locations. General Electric Company (GE) began producing new appliances for American consumers on its factory floors in the state of Kentucky. Likewise, Ford Motor Company is planning to curtail overseas production and expand its manufacturing base in the state of Texas. Reduced production costs resulting from cheaper U.S. dollars are a big reason behind the booming production in the United States. Combined with soaring labor costs in China, the relative wage gaps between the two countries are shrinking.
Non-labor costs associated with overseas production are also on the rise. An analysis by Harvard University Professor Michael Porter et al. found that advancement in production processes have led to a decrease in the proportion of labor costs relative to total costs, highlighting the impact of the hidden costs of overseas production such as difficulties in quality management, high attrition rates, and concern over intellectual property protection. The shale gas revolution has had a significant impact as well. Following a significant decline in natural gas prices, Dow Chemical Company announced its plan to construct the world's largest ethylene plant in Texas.
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