US reshoring efforts undermined by record Asian imports

20 July 2018 Consultancy.asia

An A.T. Kearney report on US manufacturing sector reshoring has revealed imports from the country’s 14 largest low-cost country trading partners in Asia rose by $55 billion last year to reach an all-time high. 

In its fourth annual Reshoring Index on the US manufactured goods sector, the global strategy firm A.T. Kearney has highlighted the sharp rise last year in imported goods from the United States’ primary lost-cost Asian trading partners, jumping 8 percent as the largest twelve-month increase since the economic recovery of 2011. In absolute terms, the worth of imports climbed a whopping $55 billion in 2017, contributing to the $118 billion or 19 percent total increase since the consulting firm’s inaugural reshoring analysis in 2013.

According to A.T. Kearney, the firm initially set about the reshoring research to reach beyond the politically-spun anecdotal reports and establish a set of substantiated facts, noting that even the best available research at the time was more focused on ‘promulgating models of future reshoring than on accurately assessing reality.” Its objectives, the firm says, were simple; find out what US manufacturers are doing and separate the hype from the reality.

Asian import growth into the US – 2011 to 2017

The conclusion, too, is a straightforward one; despite the high-profile cases often trumpeted on Twitter, US reshoring continues in A.T. Kearney’s words to be little but a drop in the bucket. Simply, although the US recorded strong growth last year in gross manufacturing output, the gains were easily outstripped by the much faster growing imports. In total, across the four years of the index, the manufacturing growth figure for the US has been a 1 percent rise of $81 billion – against the combined $118 billion 19 percent increase in imports from its 14 chief Asian markets.

The proportion of US reshoring has become even smaller then in relative terms. And the figures could worsen yet, with the authors of the report contending that the US president’s $1.5 trillion package of tax cuts signed into law at the end of last year are likely to exacerbate the gap. “The combination of an overstimulated economy and a jobless rate that is the lowest it has been in more than a decade will likely result in even more imports when domestic manufacturing can’t keep up with growing consumer demand,” the report states.

Of the 14 Asian countries cited in the report as traditional offshore trading partners – China Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, the Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia – China by far remains the largest importer to the States in monetary terms, accounting for $494 billion of the $751 billion 2017 total, or roughly two thirds, at plus 9 percent – behind only the growth rates of the Philippines, Hong Kong and Cambodia.

Rising imports to US from Asian offshoring countries

According to the study methodology, this has seen the highest import ratio (in short, 12.4 cents worth of imports for every $1 of US gross domestic manufacturing output = 12.44 percent) recorded since the firm begun its analysis in 2014, and compares to 12.17 percent last year and 9.15 percent in 2008, after a slight decline in 2016. The authors cite several reasons for the continued trend away from reshoring, among them the ongoing benefits of cheaper labour costs, the significant offshoring investments already made which aren’t easily unwound, and the shortage of skilled US labour in the increasingly technology-driven manufacturing sector.

The author’s finish on a cautionary note, that ‘although tariffs and political posturing could impact and potentially change the direction of the reshoring trend, there are many potential futures,’ – such that the US isn’t necessarily given as the most logical destination for relocation. The report concludes; “Even though 2017 and the roaring first half of 2018 are providing optimism for the US manufacturing sector, it will take more than political headlines to effect any meaningful and lasting change. As a result, any tariffs put on imports from those low-cost countries will, in the short run, only be felt in American consumers’ wallets.”

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Economic boom will see 500 million Indians enter middle-class within a decade

18 April 2019 Consultancy.asia

India’s economy is projected to grow at a base rate of 7.5% annually to 2030 according to an analysis from Bain & Company, with 500 million people moving into the middle- and high-income bracket over the period.

India has boomed in recent years, buoyed by a growing population and rapid economic development. Today the country is the world’s second largest in terms of population and sixth largest in respect to economic clout – with its economy still growing as one of the world’s fastest, at 7.5% in 2017. As incomes have risen, millions of citizens have moved up into new consumer categories.

An analysis from Bain & Company for the World Economic Forum shows that the future is also bright for the country according to long-term fundamentals, with a growing GDP of which around 60% is domestic private consumption, insulating it to a degree. There is also a healthy savings rate, at around 22% of income, and a large working age population, with a median age of 28 years.Evolution of household income in IndiaThe Indian economy is projected to enjoy strong growth in both the low and high case scenarios considered in the analysis. The base case will see economic growth stable at 7.5% on average until 2030, with just a 1% degree shift either side of this figure for the lower and the higher case scenarios. The effect of growth for the base case is an additional 500 million middle- and high-income earners added to the economy to 2030, with 50 million fewer in the low case scenario – pushing the share of upper-middle and high-income earners to 48% of the total population.

The firm’s projection of income growth would see consumption spending increase from $1.5 trillion to a massive $5.7 trillion by 2030. The growth is largely driven by a huge increase in the country’s middle class households, which are set to expand by 140 million, while the high-income earners are set to grow by 21 million – together a 51% increase on 2018. The middle class will see its share of total consumption increase from 30% to 47%, while around 25 million people will be rise out of poverty, with total poverty decreasing from 15% to 5% of the population.Indian population statisticsUnlike much of the developing world, India is ageing slowly, with a current median working population age of 28 which is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%.

The developed rural population has grown slowly over the same period, from 13% to 15%. The urban population meanwhile has increased from 28% of the population to 34%. Urbanisation is also set to continue. By 2030, the rural population is projected to decrease further, to 44%, with developed rural only growing by 1% in the period. Urban development is projected to hit around 40% by 2030.

The ongoing urbanisation and rising incomes will lead to further consumer shifts. With considerable changes to income distribution across India, growth in the middle class segment is expected to see around $2 trillion in incremental spending on affordable mid-priced offerings, while a further $2 trillion will be shifted to more premium product lines as consumers trade up.Consumer spending shifts in IndiaBain notes that buying behaviour will shift in line with both trading up as well as in new category spending. In food for instance, around 25% incremental spending will shift towards more premium goods, while around 32% will shift into health and organic food stuffs.  Personal care meanwhile is set to see considerable premiumisation, at 59% of incremental spending, as well as a broadening of product categories.

“India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes,” states the report. “As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future.”

It concludes: “The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.”