It's called reshoring, and it's a popular thing to do. Apple (AAPL) announced last December that it planned to bring some of its PC production back to the United States, sparking protests from Hewlett-Packard (HPQ), who claims it never (entirely) left. Lenovo is looking to build some Think-branded notebooks in North Carolina, while Foxconn is mulling the expansion of its US operations.


At the same time, President Obama has made reshoring (or "onshoring") a part of the national agenda. General Electric (GE) dutifully became the poster child for the movement, and a story in the Atlantic chronicles the company's attempt to relocate appliance manufacture from China to Kentucky. GE was surprised to discover it could cut the price of a water heater 20% by producing it domestically.

It seems there are some advantages to having a factory close to market, and even more to employing assembly-line workers who share a common language with R&D staff. Outsourcing allows companies to make existing products cheaper, but throws roadblocks in the development of new designs, and hinders the ability to produce new products quickly and in the desired quantity. In the early and mid-'00s, HP and Dell (DELL) moved PC production overseas to remain competitive in laptops, where the market was mature and competed on price; but they found themselves outmaneuvered when netbooks and tablets arrived. These segments were quickly dominated by Asian firms Asus and Acer, and of course Apple – as always an outlier, and proof of the gains to innovation.

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It would also give them a competitive edge that Asian manufacturers can't afford to match. Intel (INTC) was onshoring before onshoring was cool. It never spun its foundry business like Advanced Micro Devices (AMD), and it didn't move production offshore when conventional wisdom dictated it. As a result, the company holds a generational lead in manufacturing technology, and earns higher gross margins than any of its fabless competitors. This advantage, Intel's greatest asset as it struggles with ARM Holdings (ARMH) in mobile devices, was made possible by the fact that Intel was integrated -- that it had both capital and somewhere productive to invest it. Compare this to Taiwan Semiconductor (TSM), a company whose cash has dwindled as it struggles to fund an R&D program that, as a percentage of revenue, is only one-half the size of Intel's, and Qualcomm (QCOM), which nurses a $27 billion nest egg as it complains about its supplier.



This story was originally published on Minyanville.