For decades, the global manufacturing playbook was simple: find the cheapest labor, build a factory there, and ship the goods back.
In the era of the increasingly autonomous robotics and advanced manufacturing, labor-cost arbitrage is no longer a competitive advantage. If a robot in Ohio costs the same to operate as a robot in the Hong River Delta of Vietnam, the “win” goes to the city with the best infrastructure, the cheapest energy, and the shortest supply chain.
Yet, this shift brings a “Goliath” of a barrier: The Sunk Cost Trap.
The Value Haircut in Precision Manufacturing
The difficulty of reshoring manufacturing to US, EU or UK cities isn’t just about finding workers; it’s about the capital expenditure (CapEx).
You buy a $10M robot, get it planted. And if you went to sell it the day after you turned it on — it would sell for probably $3M because you have so much sunk cost. Worse than a car.
This 70% immediate “value haircut” represents the cost of installation, specialized foundation work, software integration, and the loss of liquidity. It is the single biggest reason why “standing up” manufacturing in the United States is a high-stakes gamble that most small-to-mid-sized cities are losing.
Is Robotics Really a Silver Bullet in Manufacturing?
A couple assumptions that city planners should consider addressing:
Robotics eliminates the need for labor?
The Reality: It doesn’t eliminate labor; it upgrades the cost of it. You replace 100 low-wage workers with 5 high-wage robotic technicians. If your city lacks the “Tier 1” technical talent to fix a $20K humanoid when it breaks, that machine becomes an expensive paperweight.
Why not put the robots in low-cost jurisdictions?
A skeptic would ask: If labor is irrelevant, why deal with US or EU regulations and taxes?
The answer isn’t “patriotism” — it’s Geopolitical Risk and Energy. The United States has cheaper, more reliable natural gas and electricity than almost any peer competitor. Increasingly, manufacturing is an energy game, not a labor game.
The “Sunk Cost” prevents entry. Does it prevent competition?
The massive barrier to entry protects the incumbents. If a city helps a company “plant” that $10M machine, they aren’t just attracting a business; they are creating a “moat.” The company can’t leave because they can’t afford the $7M loss on the exit. Or can it?
Manufacturing-as-a-Service
If the barrier is the €7M loss, the solution isn’t just “more subsidies.” It’s a shift in how cities view industrial real estate.
To win, we at 5,000 Cities advocate for de-risking the “Sunk Cost.”
1. Industrial “Plug-and-Play” Under certain conditions, cities could invest in “Specialized Shells” — buildings already equipped with the heavy power, reinforced flooring, and climate control needed for advanced manufacturing operations. This reduces the “sunk” part of the investment for the company.
2. Robotics-as-a-Service Instead of companies buying the machines, they could lease those AI agents and robots. This moves the $10M CapEx to an OpEx (operating expense) model, making the “instant $3M valuation” the problem of the robot manufacturer or a third-party financier, not the precision manufacturing operator.
The Bottom Line
The “race to the bottom” on wages is coming to an end, Globally. The new race is for Capital Efficiency. Cities that understand the sunk cost problem — and work to mitigate the immediate 70% value loss for advanced manufacturers on their home turf — will be the ones that dominate the next decade of production.
What’s Your City’s Industrial Strategy?
The “sunk cost” of precision manufacturing is one of the biggest hurdles to the American and European re-industrialization dreams. Are you building the infrastructure to lower that hurdle, or are you still waiting for “cheap labor” to return?
