Global Manufacturing Investments: America is Gaining

Source: Accenture, Financial Times

As the nation starts to consider whether the current administration has done enough to create domestic manufacturing jobs, some favorable trends are occuring that will lead to more jobs. Multinational corporations are strongly decelerating their investments in China while increasing their spending on new assets in North America. A new study by consulting firm Accenture, “Global Shifts in Industrial Investment”, has looked at factors affecting country selection for new investment, which has yielded powerful reasons why this has occurred. The trend is particularly true for industries that use a lot of energy (chemicals, paper, primary metals) but other reasons have also come into play. These include greater parity on labor costs, logistics, customer proximity and rule of law. Furthermore, investments in China by Chinese corporations have displaced foreign investments there to a considerable extent, reducing that country’s dependence. All of this means less “offshoring”,  more domestic spending on new plants.

Source: Accenture

The favorabe energy situation in North America has been highlighted in several of my blog posts over the past twelve months. Since almost every region, except for the Middle East, relies largely on crude oil for its energy and feedstock requirements, North America, with cheab, abundant natural gas, is easily able to attract new investments in sectors where energy costs make up a high percentage of total manufacturing costs.  When global demand comes back, companies will be ready to invest huge sums in new plants.

Source: Accenture

Lack of demand has for some time held up investment for new plants in the developed regions. When demand comes back, corporations will be ready to build new plants with a hoard of cash they have been accumulating, as shown in the graphic for the global chemical industry. This cash is preferably invested in new manufacturing assets, because shareholders will otherwise claim it in the form of dividends. Companies are in the business of growing by building new capacity rather than distributing all of their profits. The mounting cash sitting in corporate coffers is waiting to be spent and will now be more likely to be spent here.

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