To hear some tell it, the developed world is destined to export all its manufacturing jobs to low-wage countries. However, in one notoriously high-cost state—California—the decision to offshore is hardly clear cut, according to McKinsey research.¹

Roughly two-thirds of California's 1.5 million manufacturing jobs are in customer-service-intensive and capital-intensive industries such as electronics, fashion apparel, and plastics, where the benefits of a short, responsive local supply chain can outweigh higher domestic wages. The advantages of staying onshore are greatest for a company with products that are not labor intensive, have short life cycles and high obsolescence costs, and target very time-sensitive customers.²

To stay at home, companies often must improve their product design and manufacturing capabilities in order to reduce labor costs and become more responsive to their customers. Policy makers can help by removing barriers to competitiveness—such as California's excessive taxes on capital investments and its inflexible workweek regulations—and by promoting training programs to help workers augment their skills.