US re-shoring will lead to innovation in Canadian manufacturing

Countries like Mexico and China have traditionally been the preferred locations for US companies to set up their offshore manufacturing operations to reduce cost. The latest data released by Alix Partners, a consulting company, may change that . The Alix Partners report says that the United States has already reached cost parity with Mexico and would soon be reaching similar parity with China – by 2015 – which would mean that the cost of the production for the American firms would remain the same whether the product is manufactured in USA, Mexico or China. These countries that had built a niche because of their low manufacturing cost have either lost that advantage or are losing it fast. 

This shrink in the cost parity was not gradual, it happened very rapidly and between 2010 to 2012, leading US companies have brought 50,000 jobs back to USA in the manufacturing sector. More firms are considering the possibility of following suit and bringing at least part of their operations back to US. It must be noted that though re shoring has brought back the jobs, it is not the same jobs that went away with the introduction of global supply chains. There is a major shift from assembly line production work to more specialized highly valuable set of skills. The jobs that are being brought back are specialized and require a different level of skill in the fields of research, engineering, design, and development. Bringing the jobs back to USA is allowing the manufacturers to test and utilize more technologically advanced practices – something which was a tad difficult to attempt in off shore manufacturing units. 

The situation in Canada  is quite different. As Canada did not ship out most of it’s jobs when the trend of relying on global supply chain started, re-shoring is less of an issues for most Canadian firms. However, re shoring in US would affect Canadian companies in an unexpected way. While  US companies are upping the ante with introduction of better design and development and more technologically advanced processes, the Canadian counterparts are lagging behind. They still house low skill manufacturing jobs in the continent and cut costs to keep those jobs at home as they do not have the resources  to finance cutting edge innovation in their fields. 

One way that Canada can be part of the innovative and modern manufacturing methods is by collaborating with multinational corporations and becoming part of the global supply chains. Some of the Canadian firms are following this trend but they are not in the manufacturing industry.  Only time will tell how Canadian companies will compete with global players with rising manufacturing costs and lesser money to be spent on innovation and design.