Episode #36: Return Guest! Navigating the Reshoring Movement: Insights from Rosemary Coates of the Reshoring Institute
In this episode of U.S. Manufacturing Today, powered by Veryable, host Matt Horine welcomes back Rosemary Coates, Founder and Executive Director of the Reshoring Institute, to discuss the current state of U.S. manufacturing. With over 25 years of experience in evaluating sourcing decisions and supply chain risk, Rosemary delves into the recent trends impacting manufacturing, including the effects of tariffs, the movement of companies from China to Mexico, and the sluggish investment climate due to economic uncertainties. She highlights the importance of developing a robust supply chain within the US and the need for a skilled workforce, particularly in the context of automation and AI integration. Rosemary also discusses the role of government policies, the lack of an industrial policy in the US, and the importance of looking at North America holistically for manufacturing solutions. Key takeaways include the potential for reindustrialization in the US through high-tech, automated manufacturing, and the strategic importance of sourcing and supply chain development.
Links
- Rosemary Coates on LinkedIn
- Reshoring Institute
- Navigating Trump 2.0
- Veryable Is Revitalizing U.S. Manufacturing
- Sign Up on the Veryable Platform
- Veryable Shop
Timestamps
- 00:00 Welcome and Introduction
- 00:15 Guest Introduction: Rosemary Coates
- 00:45 Current State of U.S. Manufacturing
- 01:12 Challenges and Trends in Reshoring
- 03:22 Survey Insights: Executive Responses
- 07:58 Policy Levers and Industrial Strategy
- 17:50 Case Study: GE Appliances
- 19:46 Future Outlook and Advice for Leaders
- 26:41 Conclusion and Resources
Episode Transcript
Matt Horine: [00:00:00] Welcome back to US Manufacturing today. The podcast powered by Veryable where we talk with the leaders, innovators, and change makers, shaping the future of American industry, along with providing regular updates on the state of manufacturing, the changing landscape policies, and more.
Today we're happy to welcome back a previous guest and a familiar voice in this space. Rosemary Coates, as the founder and executive director of the Reshoring Institute, Rosemary has spent 25 plus years helping companies evaluating, sourcing decisions, manufacturing footprints, and supply chain risk. She now leads the nonprofit dedicated to bringing cost effective manufacturing back to the US and has posted several times on LinkedIn about some of the current events and some of the insights that we're seeing from executives in the sector.
Today, we're gonna go a little bit deeper. What is happening now in US manufacturing? What policies, what actions and what hidden risk are executives still missing? And how do we turn the reshoring movement into a full-blown industrial movement and not just a blip. Rosemary, welcome back to US Manufacturing today.
Rosemary Coates: Thanks. I'm delighted to be back. [00:01:00]
Matt Horine: Well, we're excited to have you. We had a great episode last time. We got a ton of insights. So there's been a lot that's gone on in the intermittent six months and we're excited to dig into it. Uh, have you've been at this reshoring issue for years now? What's. Really changed in the past six months and 12 months.
And are we in a moment of acceleration or is it just kind of gathering headlines right now?
Rosemary Coates: If you'd asked me, is manufacturing coming back? I'd say yes and no. That's a, isn't that a great answer? Yes. 11. Yeah. We've been doing this for, we're going on 11 years now that we've been around helping companies evaluate the decision to bring manufacturing back.
Boy, we've been through a lot of ups and downs, was lukewarm for a few years, and then after the pandemic we saw a lot of spikes where companies were earnestly trying to redevelop manufacturing in the us. And then in this past year, of course, with all the various tariffs and so forth, that has caused a lot of consternation and I think certainly [00:02:00] increased costs and so forth.
What we're seeing is right now companies are not investing. We just don't see a big movement to invest in American manufacturing, and I think that's because of the uncertainty in the environment and the uncertainty with respect to the tariffs. We are seeing a lot of companies exiting China and going to Mexico.
So those are the two big trends. And so I would say some, maybe somes coming back, we like to say manufacturing went out like a tsunami and it's coming back and raindrops, there's some the news stories, but not anywhere close to what was touted as. Happening when the big terrorists were put into effect a few months ago, there was speculation that all this manufacturing would come back and it's just not, and that's the truth.
Matt Horine: No, I think there's a lot more that goes into it like the on the ground, right, than some of the design. And there's certain elements of it that will take [00:03:00] effect over longer range. And a lot of the times what we've asked guests on the show is, what does the five to 10 year outlook look like? Because. As you know, kind of rooted in realism there.
It does take a lot of time, and I think your insights were backed by a recent post that I saw from you on LinkedIn where you referenced some executive responses to your supply chain shocks, you know, and or how it was framed and what stood out most from that research to you.
Rosemary Coates: Yeah, so we were engaged by the state of New York, their economic development folks up there.
We're trying to figure out how they help their manufacturing clients, and so they asked us to do this survey. We actually surveyed 18 executives all across America, not just in New York, but all across America, in the Midwest and the West and the east, everywhere. And we asked them, these are all C-level executives, and we asked them some simple questions.
How are you responding to the tariff? What are you doing and what are your plans for the future? Essentially. And to a [00:04:00] person, they told us they were doing nothing that they were, these were all pretty much mid-size to bordering on large industries, but they told us they were just not investing, not hiring because the uncertainty of the environment.
They just didn't know how to plan for the future, and they weren't willing to put a billion dollars out there to build a new factory when they were unsure of what was gonna happen. Right. What are they gonna wake up to tomorrow? Or could they depend on the future that they would have a cash flow, a positive cash flow in these factories in the future?
So they were in a holding pattern and by and large, I think that's really stuck for the last six months or so. It's not that these companies don't want to invest. These executives told us they were very anxious to rebuild manufacturing in America and start sourcing more in America. But there's just too much uncertainty to know what to do, [00:05:00] and I think that's reflected in the economic environment today, which is very sluggish.
The economy is very sluggish. We're seeing unemployment rates tick up. All of these things are reflective of what they told us now, however, they were almost all planning in the background. So what they told us that they were not doing anything right now, but they were making plans for the future. So would they invest here or would they move around the world?
And that's significant, I would say. In the 40 years I've been in industry, especially in the early two thousands, most of my clients told me, just get me to China. We know it's cheaper and all our competitors are there and just get me to China. And in today's environment, that's no longer the case. It's where in the world should we manufacture, not just get me here or there.
And there are so many more variables that are taken into consideration than there were back in the early two [00:06:00] thousands. So now these same executives are saying, find me a low cost environment, but we also need to consider the geopolitical risks. We want to have, we wanna mitigate risk in our supply chain.
So we wanna have multiple suppliers, multiple locations. The, there's a big shift in consumer, in consumer bodies, groups of consumers around the world there. There's still growth in Asia. So you don't wanna shoot yourself in the foot and rip everything out of Asia either, if that's your growth market and the growth in Mexico.
And I think Mexico is the one big constant in everything that we heard in our research. And what we see going on is that companies are very interested in moving. Production to Mexico.
Matt Horine: You know, that is a really interesting trend and we've heard a lot about, you know, the Nearshoring movement and having, you know, kind of two things.
One, the geopolitical uncertainty around China, which is, you know, [00:07:00] obviously there's kind of that long march mentality there that we see as a geopolitical opposed, uh, for some type of hedge money in Mexico, much closer. And with renegotiated trade agreements like U-S-M-C-A and maybe whatever comes out of the tariff talk.
It's a, it's certainly a valuable and reliable alternative, uh, it seems like in the near term, but from, you know, your institute's work. And I think what we've seen over the past several months, there are things that have kind of shifted around what are some of the other policy levers that, that, you know, policy makers at the state level or the federal level could consider in conjunction with tariffs.
Because that's, you know, one thing that we talked about on this podcast is. Whether it's it's right, wrong, and different. It seems like we're moving out of a globalization era into an era of some type of multipolarity or some type of. Regionalization or some type of fully re-sort movement, which, you know, those things will play out over time.
But what are some of the other policy levers that you're seeing or where people are finding the wins?
Rosemary Coates: Yeah, first of all, I guess I would [00:08:00] start with by saying that we don't have an industrial policy in the us which surprised the heck outta me. I didn't know that till few years ago. But, you know, unlike other countries, France, for example, is heavily supportive of the aerospace industry.
Mexico industrial development, different products in Central America, very focused on apparel and that sort of thing. So the government supports those industries and the development of those industries. In the US we have no policy like that. So funding and the way the government supports us is dependent on legislation and what is in the budget.
For example, under the Biden administration, there was the Chips and Science Act and the Infrastructure Act, which provided funding that helped manufacturers. And if that's a policy measure, but there's no stated goals by the US government to support this industry or that industry other than [00:09:00] we know we need to support semiconductors.
For example, pharmaceuticals, some of these batteries, rare earth elements. These things are. Top of the list for us to continue to look at and focus on, and our government needs to, I think, step up and support those kind of industries. Now, all that being said, we are trying to move production back to the US in all kinds of industries, not just those top four.
And there is lukewarm movement, I would say companies that we've spoken to and those that we work with tell us that. They'd like to manufacture here if they could make the economics work. But when you look at, there's some components to that. You've got wage rates, you've got infrastructure that's gotta be there.
You've got electricity. These things are availability of workers. These things are critical to supporting. Let's take it as an example, the electrical grid. I spoke with [00:10:00] an investment banker a few weeks ago from New York in the power sector sector. He said to me, he asked me, he had read something that I wrote and he said to me, you really think manufacturing's coming back?
And I said, yeah, I'm optimistic about that. And he said, I gotta tell you, we don't have the infrastructure, the electrical infrastructure to support it. So even if we wanted to have a thousand factories come. We don't have the electricity for it. And not that we can't build that in 10 or 15 years, but it's not here right now.
And so it's not gonna happen in the near future that that's one example. And of course we know about worker shortages, although with the unemployment rate ticking up, that may be eased a little bit. My guess is that we don't have workers with the right skills to do the work, and we don't have people that are willing to sit on a plastic bench for 10 hours a day.
Assemble iPhones or assemble running [00:11:00] shoes or that sort of thing. That's not the kind of manufacturing that we have ever had in the US and not the kind that's going continue here. So there are a lot of those kind of issues. So what's happening with companies is they're rethinking this global idea. Do they move production out of China to Vietnam or Thailand, or.
Indonesia or some other place in Asia, or do they try to bring some back here and automate the processes so they can take that labor out of it and so forth. We did another study recently. We just published it in the last couple weeks. It's up on our website and it's a comparison of labor rates in Mexico to those in the us.
Wow. I was surprised. We looked at cross border cities, pears, so San Diego and Tijuana. In San Diego, the minimum wage is $17 and I think 25 cents an hour, something like that. In Mexico, just across the [00:12:00] border, you know, it's like within a couple miles across the border. The wage rate is 2 59 per hour. When you look at differences like that, it's obvious if you have a lot of labor content in your product that you need to look for a low cost environment like Mexico.
Matt Horine: Right. No, that makes a lot of sense on some of the, the lower end manufacturing, and I think we talked about that in your last episode. You may have been the one that highlighted it first on our show about the power issue. The power grid issue. I see a lot of folks talking about energy infrastructure and what needs to be built and what needs to be done there.
I think there's all kinds of talk about alternatives like nuclear and other things that that takes time and is certainly not something that we do in the next 90 days or or six months. So that makes a lot of sense. You know, for a manufacturer that is considering it beyond just, you know, the labor or the tooling or the logistics, what other pitfalls do you usually see?
Is it primarily around labor? 'cause we. You know, at Veryable we work on, you know, kind of this fragmentation or this, this idea that it's about labor [00:13:00] access. You know, there's a lot of pools of people. We had a guest on a couple weeks ago, Nirit Cohen, who talks about the future of work and how that is, you know, I use the term gig economy very loosely, but people looking or tapping into these access pools, China has done that on an industrial scale.
There was a great book out recently about, you know, apple and China and how they basically mobilized people from the countryside into the city. So they're doing it the scale of millions. So labor access for us is certainly something that we talk about all the time and we believe we have a solution for that.
But what other. Key things are there. You know, I think that textiles come to mind. Um, and, you know, not just, you know, making, you know, smaller items for, um, you know, apparel or those types of things, but kind of the intricacies of what it takes to manufacture in the modern age.
Rosemary Coates: Yeah, for sure. So I like to say that we don't necessarily have a labor shortage.
We've got a skill shortage in today's manufacturing environment is full of computers. If you're working in a manufacturing site, you probably have [00:14:00] to move things inventory along on a computer system. You have to note if there's quality issue on a computer. These are different skills from 50 years ago when you know there were no computers, right?
So the shop floor looks very different today. And then the other component, of course, is the development of ai. We're going fast forward to, to implement AI and so many situations in manufacturing. That if you don't have AI skills, you don't have the proper skills to do the work. It's really a skills problem.
We need to focus on training our workers, not just trying to put them to work, fit them into positions where they don't have the skills to be successful. So that, that's a huge issue. I think community colleges have stepped up to fill that gap. Even writing an email. So community college, you, in order to get a degree, you have to take some basic writing.
Classes, and these are important [00:15:00] for even being able to write a, an email properly. In a business environment, that's a different skill from just ordinary manufacturing, putting pegs in holes. And then of course robotics is the other component. Not only ai, but the use of robotics in a manufacturing environment, at least workers need to learn how to.
Operate a robot and to repair a robot, not necessarily to do the work. So those are different kind of jobs, right?
Matt Horine: Absolutely. I think we've talked about that a lot here about how that augments, you know, the worker. It's not something that, if people said that 10 years ago that automation was gonna take, you know, manufacturing jobs or AI was going to say all of it seems to be built around the worker and making them more efficient and effective, uh, which is great and, and hopefully true.
But you know, one of the other big things, uh, and I think I saw this in your article recently. I think it was through business facilities. It was talking about, you know, tariffs and other things, but highlighting specifically, there was a a case study of about 12,000 US companies that specialized in stainless steel [00:16:00] processing.
This was from an article a few months back. And so, you know, that's the big question, right? Like people don't know if supply exists, it appears to exist, you know, what holds companies back? You know, specifically from the existing structure. Is it cost structure? Is it margin protection? Is it local access? I think you said earlier, what is the the big one for you?
Rosemary Coates: Yeah, I think it's a mindset difference. So. Nothing is static in manufacturing. It's all moving forward. What we were doing two or three years ago is not the same as what we do today. So you have to be constantly looking forward and understanding what are the new tools, how do you implement things, what are, what's the environment like?
It's a constant barrage of variables. That the manufacturing management has to deal with and there's no getting around that. You have to learn to be flexible to make decisions based on the current environment and the current variables that are out there, and that's the way you get to be successful. And that may [00:17:00] mean all kinds of different directions and different tools and different implementations.
Matt Horine: That's a really good point and I think that, you know, one other thing that's really encouraging to our listeners, because you have worked in this space, you were talking about reshoring long before, you know what we're talking about these days, which is reindustrialization, which is kind of different than moving the supply chain.
It's actually a good industrial base strategy. I've heard that industrial strategy from a couple of guests. Is there a case study of a company that reshored successfully from your organization's point of view, and, you know, what are were the pillars to that were, you've obviously worked with a lot of 'em, so, and I'm sure not all of them are a clean 100%.
Yep. We took the manufacturing out of China, we put it back in the US Labor was not a problem. You know, supply was not a problem, those types of things. But what's. A really good example of that over the past decade.
Rosemary Coates: Yeah, I think the, my favorite example is GE Appliances when, when Jack Welch was CEO of ge, he pretty much gutted the [00:18:00] manufacturing in the us, moved it all overseas, and that's the way he achieved these high financial results.
That was the strategy and the results were spectacular in terms of financial results. When Jeff ML took over, he challenged the engineers to find products that they could in fact manufacture in the US and they developed a geo springing water heater. This was maybe 10 years ago or so, and that water heater was a heat on demand water heater, a high-end kind, the kind of thing you would see in high-end housing and other places.
They were quite successful. They re-engineered the production line. They put people back to work in, in Kentucky and they reopened the plant there. It was a great success story and they've continued on down that road. So they continued to find in other plants around the US opportunities to bring manufacturing back to serve the local market.
And that's through [00:19:00] re-engineering the, the factory floor for high efficiency for the introduction of automation. We're really looking at the financial profile of manufacturing in the US and where their customer base is. So that's been a big success story. Although what I would say is, um, the backbone of American manufacturing is not GE size.
That's right. It's smaller companies that don't have those kind of resources. Then those companies are. Making decisions based on the current environment, the labor rates, the availability of workers, the those energy available, what's the price of energy mean? All these things are go into the pot before they make a decision on what to do.
Matt Horine: That makes a lot of sense. I think, you know, one other big thing to kind of pull back and look at the macro level of this, and I think it's probably everybody who's at the table, whether it's, um, folks who are trying to bring reshoring back, whether it's through tariffs or other policy levers or [00:20:00] those, you know, types of decisions that are made by any administration, but the nature by which we do that.
How it ties into what's becoming very clear around this picture of national security, economic sovereignty, and first mover advantage In a decoupling world, a lot of times we say we, we make a decision, we make a left turn, we make a right turn, but we've made the turn right. And so that is over the next five to 10 years, it certainly looks like a trend towards decoupling from the, the order that was probably established over the past decade.
Certainly pandemic timeframe accelerated that people viewed it through the lens of just supply chain and maybe not industrial base. And now we're looking at industrial base. So the, the winds are moving that direction if they're, if they're not already. How does all that tie, and how do you see getting, you know, wins in stages over the next couple of years and into the next decade and perhaps the next couple of decades?
Rosemary Coates: Yeah. I'm very optimistic and hopeful that we will in fact re industrialize the [00:21:00] us, but it's gotta be. Industry that's appropriate here, and that is highly automated, sophisticated manufacturing, not the 23 cent an hour t-shirt production. We don't want that back, and we wouldn't have workers to be able to do that here.
We, we couldn't afford it. And so the, that kind of production belongs overseas in a low cost environment. Here, I think we're going to look more at over the next two years at, uh, considering North America as a whole group, a combined group, having some manufacturing in low cost Mexico areas, I think is.
Probably the biggest trend that we see and but specifically because if you are making something that's the product and the raw materials and the labor of Mexico, you potentially could bring it in under U-S-M-C-A duty free. Our USMCA is gonna be renegotiated next year. There may be some changes there, but even with that, I think it's still a, [00:22:00] an opportune environment.
What I definitely see are people want to move out of China. I think we have. Really damaged the relationship with China in the last few years, and there's a general feeling that we should get out of China and not help them anymore to develop. But like I said, if you have a market in Asia, which is a growth market all across Asia, you might consider another low cost place in Asia to manufacture.
So what What I think we're seeing is that companies are. Attempting to rebuild in the US or I would say in North America more likely. And there are hurdles to get over as well as a heavy investment that's gonna be required if you make anything in the us. So you just can't compete if you have a lot of labor in the us
Matt Horine: That makes, that makes sense.
I, I know we talked about on the show the textile industry specifically and you know, obviously completely inverted over the past several decades where we used [00:23:00] to make, I think in 1970 it was something like 97% of all of our clothing was made in the United States. And obvi obviously, you know, back then a lot more labor intensive and where the automation and other things have gotten it to.
Is what used to take 10 workers now takes one worker with who's upskilled that can also maintain a wage rate. So you're not bringing back 10 workers, you're bringing back one. Per automation so that, you know, obviously there's some type of of hope there and that we can source our goods, but it changes with the labor market because you're not employing the entire manufacturing town like you did in years past.
So hopefully that that trend can kind of continue.
Rosemary Coates: Yeah, yeah. I would also say you have to look at the textiles, apparel, textiles, different from apparel. Apparel requires a lot of effort and labor and so forth. I think you have to segregate that industry 'cause we do see a pair coming back on the high end or smaller companies.
The smaller brands and so forth that can handle, that can handle manufacturing here [00:24:00] that have higher margins. So more sophisticated brands. There are some companies that are manufacturing their goods here now at last, what we're not gonna see is the t-shirt production or the the low end clothing apparel that sold at places like Walmart and that sort of thing.
That requires a low cost environment in order to maintain those low cost prices, those low prices. You, you have to. You can't make generalizations about apparel and textiles. You have to segregate it into, what are you talking about? Within that industry, the textiles are completely different. Textiles, the fully automated process, if you've ever been in a textile plant, there's nobody there.
It's just a lot of machines, right? There's a few engineers walking around tweaking things, but it isn't labor intensive at all. It's very capital intensive. That's a good example of understanding what, where you are in the marketplace and what the profile of your company is.
Matt Horine: No really good insights and definitely a differentiation there.
I think it speaks [00:25:00] to the nature of how automation can be a potential path for reshoring, you know, uh, uh, in a lot of ways, and how in other, you know, sectors of that there's potential to bring back labor in some capacity, but certainly not something that people have used it for. Margin protection and cost drive down, right.
If that was the point of the product, you know, which we see with fast fashioned companies coming out of China, things that ship on Timo and Shine and those types of things. You know, it's designed for a consumer market that expects those low prices. And that's where tariffs have probably seen the impact from the consumer side, which is, Hey, you know, we flood the market with that kind of cheap material.
That's what happens when, you know, geopolitical kind of shift a little bit. But this is the part of the show where I probably ask for, um, you know, your expertise and. And advice if there are manufacturing leaders listening, you know, if you had to name one action, a manufacturing leader could take this quarter to move from some type of, you know, kind of generalization to real reassuring.
What would it be, and if that's at the executive level, [00:26:00] obviously, but also, you know, how does it impact their organization?
Rosemary Coates: Yeah, I think because of the stagnant nature of investment in what's going on right now, if you had to do something this quarter, I would say try to redevelop your supply chain in the us.
As manufacturing went offshore, all the suppliers did too. In order to reestablish a supply chain in the US to get your components and raw materials, you have to redevelop it. It isn't like you can just call up somebody and say, okay, now I need this. These manufacturers have to redevelop that manufacturing process in the us.
So I would say that's the immediate need is to work on redeveloping your supply chain and sourcing in America.
Matt Horine: Really great advice and something that's been recurring on this show. Rosemary, if you want to tell us a little bit about your organization in case this is the first time somebody caught one of our episodes with you on it, we now have two.
Where can they go to find out more about your organization and what you do?
Rosemary Coates: Yeah, we have a really huge website with a lot of content. It's a reshoringinstitute.org. We're a nonprofit, a nonpartisan organization, and we publish all of our research. We use, we are affiliated with now 20 universities, and we take interns from these universities and they help us with our research.
We publish everything on our website. And I think that's the place to go. It's www.reshoringinstitute.org.
Matt Horine: Excellent. Well, listeners, be sure to check out Rosemary's website and the Reshoring Institute. Thank you for coming back and joining us on the show, Rosemary.
Rosemary Coates: Thank you.
Matt Horine: To stay ahead of the curve and to help plan your strategy, please check out our [00:26:00] website at www.veryableops.com and under the resources section titled Trump 2.0, where you can see the framework around upcoming policies and how it will impact you and your business. If you're on socials, give us a follow on LinkedIn, X, formerly Twitter, and Instagram. And if you're enjoying the podcast, please feel free to follow the show on Apple Podcasts, Spotify, or YouTube, and leave us a rating and don't forget to subscribe. Thank you again for joining us and learning more about how you can make your way.