When Dallas-based Texas Instruments Inc. (TI) decided in 2003 to build a silicon chip plant, the choice of location came down to Singapore vs. Texas. China was out of the question. Manufacturing at the plant would involve defense technology that was not allowed to migrate to China. The winning location ended up being Richardson, Texas, just a few miles from the company’s headquarters. The new site was also only a few miles from another Texas Instruments chip factory, which would offer synergies on parts and consumables.

But there were quite a few other reasons that Texas stacked up favorably against Asia. “When we choose a location, we look at IP (intellectual property) protection, logistics, power, water, earthquakes, even typhoons. We have 50 items on the list,” says Kevin Ritchie, senior vice president for TI’s Technology & Manufacturing Group. Surprisingly, one of the qualities that favored Texas was labor rates. “We look at the growth of labor rates. If labor in China is going up 10 percent to 15 percent per year and labor in the U.S. is going up 2 percent, the U.S. looks good over the 20-year life of the plant.”

TI also received some incentives. The University of Texas kicked in $300 million in the form of a new engineering program, along with a new engineering building to help support the plant. Yet Ritchie insists that incentives were not the decisive factor. “Even with the education support, U.S. incentives are not even close to the incentives from other countries,” says Ritchie. “If we build in China, we could get 20 percent off of every dollar. I could get power down to 4 cents per kilowatt and get my water tax-free.”

A good part of the decision was based on local engineering talent . Two electronics plants were shutting down nearby, which provided a wealth of talent. When that was combined with the educational incentives, it provided assurance the plant would be well staffed with sufficient engineering expertise. “Experienced talent in China turns over very fast,” says Ritchie. “Where would we get people for our start-up team?”

Global companies are starting to take a new look at manufacturing in the United States. GlobalFoundaries, a spinoff of chip-maker Advanced Micro Devices Inc. (AMD), recently broke ground on a $4.2 billion facility in upstate New York. Like TI, GlobalFoundaries faced some restrictions on location due to technology, but another incentive for staying in the United States was New York State’s $1.2 billion incentive. NCR Corp. has also decided the United States looks good. The company opened a facility in Columbus, Ga., this fall in a move to consolidate its production of automated teller machines (ATMs). It wanted to be near its customers and close to its supply chain (see " Bringing Manufacturing Back Home To Georgia "). These are just a small sample of a growing number of manufacturers who are returning their manufacturing to North America after becoming disenchanted with outsourcing to Asia.

Contrary to common wisdom, manufacturing is not shrinking in the United States—it’s actually growing, though not as quickly as it used to. According to a “Business Week” analysis of U.S. Federal Reserve Bank data, U.S. manufacturing capacity surged by 44 percent during the boom years of 1994 to 1999, while the economy expanded by 26 percent. Recent years haven’t seen the same increase. Yet manufacturing is still growing. From 2002 to 2007, capacity rose 5 percent while the economy expanded 17 percent. During those years, China’s investment in manufacturing exploded. According to the United Nations, in 2007, the United States still commanded 20 percent of world manufacturing, compared with China’s 12 percent.

China disenchantment

The move to China manufacturing came with a hornets’ nest of problems. While China justifiably touts its shiny-new, world-class plants, there have also been significant quality problems that have led to costly recalls and tarnished brands. Logistics can be a problem when your research and development and your customer are both 6,000 miles away. Emerging labor unions and steady wage increases are eroding cheap labor costs. Finally, knock-offs and stolen IP have broken the promise of selling to China’s massive indigenous market.

Consequently, North American manufacturing is looking better by the minute. Like Texas Instruments, many multinational companies are giving the United States, Canada and especially Mexico new consideration. Though hard to believe, the United States may be the new low-cost manufacturing center. Labor rates are stable, quality’s not a problem, IP is safe and the plant is close to a robust supply ...