Rick Weddle: Welcome to Site Selection Matters, where we take a close look at the art and science of site selection decision-making. I’m your host, Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners and corporate decision-makers to provide you with deep insight into the best and next practices in our profession.

In this episode, we have as our guest, Greg Burkart, managing director and practice leader for Site Selection and Incentives Advisory Services with Duff & Phelps. Today, Greg will talk with us about manufacturing reshoring. More specifically, we’ll talk with Greg about how the COVID pandemic is changing the dynamics of manufacturing location activity around the world. Join me as we welcome Greg Burkart to Site Selection Matters.

Greg, a lot has changed and continues to change in response to the COVID-19 pandemic. Global supply chains are being reexamined as we speak. I’ve even heard you suggest that companies are maybe nearing a tipping point to bring manufacturing operations back to the U.S. Take a minute or two, if you will, to help our listeners understand your views on reshoring and what you mean by companies reaching a tipping point.

Greg Burkart: Thanks, Rick. So, since the passage of NAFTA in ’93, the trend for companies has been to shift the manufacturing of goods from the U.S. to low labor costs. And in 1992, the U.S. trade deficit for goods production was about $85 billion. Last year, the trade deficit had multiplied 10 fold to $854 billion. So over this time period, what we were also seeing what all the shifts of production to China, the labor costs in China rose about 2,000% and that caused companies to start analyzing their manufacturing operations because the U.S.-China labor deferential shrunk from about 31X to about 4X.

Initially, companies as these labor costs started to rise, what they did is they moved from the coastline in China to the further interior parts of China. Once the pandemic hit, companies realized that, you know, they couldn’t reliably get their goods out of the Western Province. And so, as a result of that, the goods just stopped flowing almost overnight. And what was kind of this slowly simmering pot really started to boil over in April. The C-suite was also facing the possibility that the current administration would designate their company as a critical business. And for them, that was the tipping point where they would be forced to relocate operations back to the U.S. So instead of having this, you know, far-flung supply chain, companies started looking more closely at manufacturing for the U.S. market in the U.S. or asking some of their critical suppliers to relocate back in the U.S. So that’s what we mean by the tipping point. The pandemic caused companies to kind of reach that tipping point.

Rick: So, Greg, let me ask a question, the critical business designation that the federal government could make would actually be a regulatory matter where they might say to industry A or industry B or company A, or company B your business is critical, therefore you have to realign your supply chain. So, they were actually faced with possibly having to do it for non-business reasons. Is that right?

Greg: Correct. So, Department of Homeland Security has identified, I think there’s 13 or 14 industry segments that they view as being critical to national security. So, it’s a designation that could come from Department of Homeland Securi