Brian Sozzi, Contributor 2/16/2012
The grand theme I want to put on the table is the concept of onshoring, sometimes called reshoring, which is the bringing back of U.S. jobs from overseas supply chains.
U.S. businesses have started to realize that while workers in far away lands garner miniscule wages compared to their U.S. counterparts, having operations outside of the country can be a strategic disadvantage. The speed and structure in which information is consumed has caused U.S. consumers to demand top quality products and to want to buy them whenever they please.
Having a manufacturing plant domestically aids in the quicker movement of goods from design table to sales floor. Furniture maker Ethan Allen is great example of a manufacturer producing most of its products in the U.S. and doing customization for clients, setting itself apart from price-point focused competitors.
Corporate managers are simply getting over their infatuation with cheap international labor and analyzing the total costs of doing business in the U.S. compared to say, China or India.
There is a dollop of icing on the cake here as well. The topic of focusing on onshoring to boost employment levels seems to be an area of agreement between bickering Republicans and Democrats. Republican presidential hopeful Rick Santorum, for example, wants to zero out the U.S. corporate tax for manufacturers.
Anytime the major political parties agree on anything, even the slight thing, it’s cause to sit up and take notice from an investment standpoint. The Donkeys and Elephants may be a little apart on how to precisely shepherd along the corporate onshoring interest, but at least they are talking the same language. It’s high time they do find common ground if the following is to be reversed:
- Manufacturing employment has fallen by approximately 37% since 1980.
- According to a survey done by the Manufacturing Institute and Deloitte, some 600,000 manufacturing jobs are currently unfilled due to a mismatch between job requirements and experience.
I have read a fair number of columns bantering about onshoring. Is it overhyped? Do we really need more jobs in the service sector U.S. economy? The debates are almost endless. Unfortunately, though, I have failed to stumble upon investment strategies to profit from onshoring, which has already begun to a certain extent, and could likely gain steam in the years ahead.
Buy-and-hold investors, this should be right in your wheelhouse: a highly probable future event to build positions around in companies with durable competitive advantages.
A few names that come to mind:
- Waste Management: Owns 260 plus landfills and is the largest waste management business in the U.S. More manufacturing production means more waste to be piled into the company’s green bins.
- ADP: Benefits in two manners. First, workers are hired to run new domestic manufacturing plants (hopefully by people that used the downturn to attain new technological skills). Second, there should be a trickle down effect in the overall employment sector via a ramp in higher paying manufacturing jobs.
- Dunkin Brands: “America Runs on Dunkin” as the brand’s slogan goes. The company’s moat is not as wide as an ADP or Waste Management, but more U.S. manufacturers should mean more egg sandwiches (which Starbucks does not do superbly) and coffee. Store penetration is increasing in areas of the country that are manufacturing oriented.
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