More specifically, in Alabama.

Photographer: Nicholas Kamm/AFP/Getty Images

Why Airbus Built a U.S. Factory

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Airbus, which sells lots of planes to U.S. airlines, is opening its first plant in the country today. Actually, workers at the Mobile, Alabama, facility had already started putting together two A321 jetliners months ago, but today is the ribbon-cutting.

So that’s exciting. Big airplanes being built in Alabama! The U.S. manufacturing renaissance continues!  

Then again, as Bloomberg’s Julie Johnsson reported Friday, Airbus archrival Boeing is thinking about building its first factory in China. It would just be a finishing facility for 737s built outside Seattle, but still: a big step.

These moves seem to be motivated by similar considerations, the most important of which is bringing production closer to where the customers are. This practice goes by the names “onshoring,” "reshoring" or “nearshoring,” and big companies have been doing a lot of it lately. A recent survey of manufacturing and distribution companies serving North America and Western Europe by the consulting firm AlixPartners found that 32 percent of “have already nearshored or are in the process of doing so to meet end-market demand” and 48 percent say “nearshoring activities are likely within the next one to three years.”

This is a big shift from a decade ago, when it seemed as if all supply chains were going to go through China. It may even help explain the manufacturing slowdown in China, MIT engineering professor and supply-chain expert David Simchi-Levi  wrote in the Harvard Business Review earlier this month.

Simchi-Levi gave four main explanations for the change:

  1. Oil prices. They’re down a lot lately, but the big spike from 2004 through 2008 reminded manufacturers that shipping things around the world could sometimes get really expensive.
  2. Labor costs. “In the last few years, labor costs in China have increased annually by almost 20% versus 3% in the United States and 5% in Mexico.”
  3. Automation. Robots are replacing labor anyway.
  4. Risk. When your supply chain is spread across the world, the chances that something will go wrong go up.

AlixPartners offered a couple of others: “companies move manufacturing closer to consumption markets in order to lower freight costs, improve time to market, and raise customer service levels.”

Because the U.S. is a huge market, nearshoring entails shifting some manufacturing back into the country. It’s important to note, though, that it probably doesn’t entail the wholesale return of good manufacturing jobs.

For one thing, as Boeing’s possible China move illustrates, manufacturing can also follow demand to faster-growing economies such as China’s or India’s. For another, the links between manufacturing productivity, employment and pay are growing more tenuous. Increased automation, as Simchi-Levi notes, means manufacturers can make more stuff with fewer workers -- as is clear in the revival of the textile industry in the South. Also, nearshoring doesn’t mean an end to manufacturers pitting workers in different countries and regions against each other.

By locating its plant in low-cost, union-unfriendly Alabama, Airbus “puts pressure on trade unions back in Europe,” aerospace analyst Richard Aboulafi told Agence France-Presse. Boeing’s factory in South Carolina, which recently fought off a unionization drive, serves a similar function relative to the company’s unionized plants around Seattle. Hourly pay for durable-goods-manufacturing workers dropped below the average for all U.S. nonfarm workers for the first time on record last November. Aircraft production workers have been a holdout, with an average hourly wage of $37.90 in June, but that could change.

Still, the nearshoring trend is having a noticeable positive effect on manufacturing employment in the U.S. After decades of decline, its share of overall employment has been more or less steady since the last recession:

Then again, that share is now tiny: 8.7 percent, compared with the all-time peak of 38.8 percent in November 1943. Some manufacturing is returning to the U.S., but manufacturing isn’t back.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net