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January 6th, 2012

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While many companies continue to offshore manufacturing jobs in search of savings on labour and raw materials, a small but noteworthy countertrend has begun both here in Denmark and abroad.

Numbers of Danish companies have discovered that manufacturing overseas is not the moneymaker they expected it to be and are now bringing production back home, reports metroXpress newspaper.

One of those companies is T-Rex, which produces guitar effects pedals. Seven years ago, T-Rex moved its production offshore to China. Now the company plans to bring it ‘inshore’ back to Denmark.

In China, “prices have risen on wages, duties and raw materials. It’s a trend that began awhile ago, and we expect it to continue,” Steen Meldgaard, the president of T-Rex, told metroXpress.

“At the same time, production in Denmark has gotten cheaper,” Meldgaard continued, “because companies have used the recession to automate and become more efficient”.

Copenhagen Business School associate professor Peter D. Ørberg Jensen confirmed the observation.

“Everything being made in China, especially down in the southeast part of China where workers have been putting a certain pressure on wages, is getting more expensive,” Jensen said. “These factors will certainly strengthen the tendency for companies to move back to Denmark.”

This ‘inshoring’ trend was also noted in the US, where the tractor manufacturer Caterpillar, NCR Corporation (which makes ATM machines), Ford, and a toy company that makes plastic Frisbees – the sort of product we now associate with the ‘Made in China’ stamp – have also pulled production back to the US.

Noting such examples, the Boston Consulting Group (BCG) predicted last year that the US would experience a “manufacturing renaissance” over the next five years, as companies disappointed with rising costs and mediocre productivity in Asia would come home.

BCG predicted that Chinese and American wages would converge by 2015, as wages in China are rising at 15-20 percent per year, while American wages have stagnated – a scenario now also playing out in Denmark.

Unreliable electricity and a persistent shortage of sufficiently skilled workers in China and other Asian countries have also decreased the gains from offshoring, reports BCG.

Add in high fuel costs, long delivery times, and language and cultural barriers, and many are finding that the incentives for offshoring production are not what they were once cracked up to be.

Other companies have found that manufacturing overseas compromised the quality of their product, turning the venture into a bigger hassle than they had bargained for – as the Danish shoe and clothing designer Ilse Jacobsen discovered. She has now also brought production back home to Denmark.

“There were too many things that didn’t come together when we were working in China,” she told metroXpress. “Too many things didn’t turn out to our standards, and I wanted to be able to sleep soundly at night.”