Industry Trend No. 3: Rising Labor Costs Overseas
It was not too long ago that companies began to embrace the outsourcing of manufacturing operations, all in the name of labor cost competitiveness, carried along by the then-current trends in operations strategy.
But times (and business cycles) change. Today, statistical data show that foreign outsourcing is at a turning point, in part due to the rising cost of labor oversees.
For instance, in the last few years the labor costs in China have increased year-over-year by nearly 20% and in Mexico, by 5%. Meanwhile, US labor costs in the same period have risen year-over-year by only 3%.
One result is the trend away from outsourcing and toward reshoring — the movement of previously outsourced businesses and factories back to the US. For example, in a telling move, machinery and engine powerhouse Caterpillar Inc. recently reshored its operations from China and Mexico to the US.
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