The perception that "runaway plants," manufacturing facilities that close in the U.S. and reopen in a foreign country to ship the same products back to the U.S., are the biggest threat to the future of U.S. manufacturing may be common, but it's also probably incorrect, according to The Decline in Number of U.S. Manufacturing Plants – A Problem Much Deeper Than Runaway Plants. The report from the Manufacturers Alliance for Productivity and Innovation (MAPI) says the "single-minded attention" on runaway plants and a preoccupation with their return to the U.S. is "misplaced."
In the first quarter of 2012, there were only 304,000 manufacturing plants in the U.S., according to a new report from the Manufacturers Alliance for Productivity and Innovation. That number marks a 19 percent decline from just 15 years ago.
But the reduction in the number of U.S. plants is more a domestic issue than an international one. "What may be surprising to some observers is that the rate of plant closings (in the U.S.) has a declining trend over the last 13 years," says report author Daniel J. Meckstroth, Ph.D., MAPI chief economist. "Unfortunately, the rate of plant openings has consistently fallen even more."
U.S. companies are indeed opening plenty of plants overseas, but not to replace those closed in the U.S. The desire to serve international markets, rather than a desire to manufacture U.S.-bound products at a lower cost, is a bigger driven of new foreign openings, says Meckstroth.
There are many reasons to invest in foreign manufacturing operations, including the avoidance of trade barriers and shipping costs and the attraction of selling to developing markets, which Meckstroth says typically have faster growth rates than the U.S. (Read: Global Markets Are Not Just for Large Companies Anymore)
If sending U.S. plants overseas isn't the biggest threat to the future of U.S. manufacturing, what is? "A widespread, more fundamental reason for the decline in the number of manufacturing plants (and manufacturing jobs from openings and closings) is the sourcing decision to purchase intermediate goods from foreign rather than domestic suppliers," Meckstroth writes.
Only $1.7 trillion of the $5.4 trillion in manufacturing shipments in the U.S. in 2011 came from manufacturing's "value-added," the contribution of a company's labor and capital to its gross output. The vast majority of shipments – 69 percent – can be attributed to the intermediate purchases of goods and services.
Meckstroth argues that decisions on whether to source intermediate purchases locally or internationally will have the largest impact on the future of manufacturing in the U.S. For more information, visit mapi.net.
