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Caterpillar: Reshoring to America


In the early-to-mid 2000s, U.S. companies were off-shoring manufacturing production to China at an extremely aggressive rate. Part of the trend was tied to getting a foothold in the quickly growing Chinese consumer and B2B markets. But much of the off-shoring trend was simply tied to taking advantage of that country’s low labor costs.

By 2012, many of these companies were taking a more balanced view of production in China. Labor costs there have escalated. Trans-Pacific shipping costs have not gotten any cheaper, and intellectual property protection concerns about China persist. Some companies began running the numbers and were surprised to find that the cost advantage of producing in China was actually only about 10 percent. Once they factored in travel costs and supply-chain delays, these companies began to conclude that in some instances, it makes sense to re-shore some of that production in the U.S.

Caterpillar is a case in point. A truly global company, Cat will likely always have an R&D and manufacturing presence in China. But for the production of hydraulic excavators, which weigh from 12 to 49 tons and are costly to ship, it made sense to do that work in the U.S. Caterpillar opened a state-of-the-art, 1.1 million square foot factory in Victoria, Texas, at a cost of $200 million. Employment there started at 225 new positions, with more added as production ramps up and demand grows. Employment could reach as high as 800 jobs.

The excavators had been produced in Akashi, Japan, and Aurora, Illinois. The company is now using those facilities for other projects, while enjoying the benefits of serving the North American market for those machines from one modern facility in Victoria. Customers for the excavators run the gamut of industries from mining to oil drillers to cement producers to construction.

States compete for major capital investment of this type, and Texas Gov. Rick Perry was quick to note that his state’s low taxes, reasonable regulations, fair courts, and skilled workforce are instrumental in attracting world-class employers. To Perry’s point, the more the U.S. adopts policies at the national level that make the U.S. an attractive place to invest, the greater momentum the emerging reshoring movement is likely to see.

From 2011 to 2013, Cat opened or modernized a dozen of its facilities in the U.S., taking advantage of the gradual improvement in the economy.

The Boston Consulting Group says the industries most likely to see reshoring to the U.S. in the next few years include computers and electronics, machinery, appliances, electrical equipment, and furniture. Given the importance of manufacturing to any country’s economy, that is good news for the U.S.