From offshoring to onshoring

Remember Barack Obama's talk of wanting to get jobs back to the US once he became president? Well, if oil continues to cost a lot, this may just happen and without Obama's help.

An article in the latest The McKinsey Quarterly argues that thanks to rising wages in countries like China and Malaysia (favoured offshoring locations for manufacturing) and high costs of oil, the advantages of offshoring are rapidly eroding.

In 2000, when oil prices were $20 a barrel, the costs of shipping effectively added around 3 per cent to costs; today, that figure's around 11 per cent.

And, if imports are needed to make the final product, the impact increases -- so, it costs $100

to ship a ton of iron from Brazil to China which is more than the cost of the mineral.

Add to this the fact that, on average, Chinese wage inflation (in dollar terms) has been 19 per cent a year since 2003, and the Chinese advantage versus, say Mexico, is down sharply.

McKinsey analysis shows, for instance, compared to three years ago, it is no longer profitable to make a mid-range server in China and it is better to make it in Mexico. Such examples can be multiplied manifold.

• Obama promises to retain and create jobs