Forget about offshoring, think nearshoring – China and Malaysia Out, Mexico In.

[The wage differential between Mexico and China has also narrowed significantly. In 2003, Mexican workers made over twice what their Chinese counterparts did; today that gap has narrowed to 1.15 times. Combined, these trends are reshaping the competitive landscape for offshore manufacturing in a number of locales.]

HBJ Capital Report....
[Publisher of "10in3" (Small Cap with 10 times in 3 years potential) Equity Research Report & "Street Smart" (Lots of Investment Ideas) Newsletter]
[Just two cents from HBJ Team on this topic; Offshoring of Hardware Products which were mostly manufactured or outsourced to China will sooner or later shift to Mexico which is near shore to US who is main consumer of these Products, this is due to various reasons like increasing logistic cost; minimizing wages gaps etc.

Offshoring of Software which is mainly done by India companies will not face the threat of near shore now but it is a matter of 3 to 5 years business scenarios might change. So, software techies get prepared for such changes...]

• The production of high-tech goods has moved steadily from the United States to Asia over the last decade. The reasons are familiar: lower wages, a stable global economy, and rapidly growing local markets. These factors combined to make nations such as China and Malaysia favored manufacturing locations.
• In the last two years, however, the favorable economic winds that carried off shoring forward have turned turbulent. The new conditions are undermining some of the factors that made manufacturers of every stripe, including those in high tech, move production offshore.

Is this the moment to consider sharply scaling back offshore production plans and bringing manufacturing back or close to the United States?

• Executives must determine the total landed cost of each product produced offshore and better understand the shifting trade-offs between cost savings from offshoring (such as lower wages) and rising logistics charges.
• Oil prices, and consequently the cost of shipping, have risen to heights few foresaw even just several years ago. Since 2003, crude oil has soared from $28 to more than $100 a barrel. The economics research institution CIBC World Markets estimates that in 2000, when oil prices were near $20 a barrel, the costs embedded in shipping were equivalent to a 3 percent tariff on imports. Today, that figure is 11 percent—meaning that the cost of shipping a standard 40-foot container has tripled since 2000.
• The oil spike not only affects exports from Asia but also sharply increases the price its manufacturers pay for raw materials. It now costs about $100 to ship a ton of iron from Brazil to China—more than the cost of the mineral itself.
• Wage inflation, coupled with a weaker dollar, adds to the challenge: in dollar terms, annual wage inflation in China has averaged 19 percent since 2003. An average production worker, paid $1,740 a year in 2003, makes $4,140 today. By contrast, wage inflation in the United States has averaged only 3 percent.

These curves are shifting amid the economic dislocations. Products that were once profitably made in areas where the local costs are lowest are therefore moving into the near-shoring zone —or in some cases may now be suitable for production in the United States.

• A midrange server, for example, made profitably in China three years ago, has slipped below the breakeven line because of higher wages and freight costs. The server now could be produced more economically at a plant closer to consumers (in Mexico, for example, where the mix of logistics and labor costs is more favorable).
• To estimate the trade-offs more precisely, supply chain managers also need a true picture of landed costs. These include the cost of raw materials, carrying inventory, managing product returns, and other hidden charges not typically considered in the simple trade-off between offshore wages and logistics described previously.
• This may be an appropriate moment to reevaluate the location of your manufacturing facilities. Take the total landed-cost analysis to the next level of detail and determine if bringing some production back home or to near-shore locations will help counterbalance the higher costs of shipping and freight. At the same time, consider the long-term geographic distribution of demand for your products.
• In rethinking your global supply chain, you must carefully evaluate the importance of speed, the availability of skilled talent, the potential for further productivity gains in Asia, one-time transition costs, the local import and tax implications, and organizational interfaces.

- HBJ Capital Team.