Later this year along the banks of the James River outside Richmond, Virginia, a paper products maker based in northeastern China will begin construction on a new U.S. manufacturing plant. The factory will churn the region’s straw and corn stalks into household products including napkins, tissue and organic fertilizer—all marked “Made in the USA.” Made by China, in America.
Daniel Acker | Bloomberg | Getty Images
Jack Brown Produce workers sort apples on a packing line in Sparta, Mich. The state, a big exporter of agricultural goods, is among U.S. regions raising its export profile.
It’s well-known American jobs have been lost to overseas competition. While work on U.S. manufacturing floors has declined, overseas markets have developed a growing appetite for American-made goods—from chemicals and wood products, to medical devices.
Documentary: Made by China in America? directed by Miao Wang about Chinese firms bringing manufacturing to the U.S. It is part of Morgan Spurlock’s “We the Economy” series (www.wetheeconomy.com).
When I was a baby, my mom waited in line at 3am with her ration ticket to pick up the monthly allowance of meat. As fortunate dwellers of China’s capital city, we received a little more than two pounds. In remote provinces, it was half or a quarter of that amount.
The United States remains the largest medical device market in the world with a market size of around $110 billion, and it is expected to reach $133 billion by 2016. The U.S. market value represented about 38 percent of the global medical device market in 2012. U.S. exports of medical devices in key product categories identified by the Department of Commerce (DOC) exceeded $44 billion in 2012, a more than seven percent increase from the previous year. Read more
A Montgomery County manufacturer of plastic injection molds and K’NEX construction toys is bringing production of one of its classic toy brands back to the United States from China.
Lincoln Logs, a classic toy brand developed nearly 100 years ago, is part of the K’NEX family of brands. Beginning next year, Pride Manufacturing in Burnham, Maine, will manufacture the Lincoln Logs product line. The Maine company is a manufacturer of engineered wood products.
K’NEX Brands, which licenses the Lincoln Logs brand from Hasbro, has designed Lincoln Logs since 1999, but decided to build upon its reshoring initiative that it introduced in 2009, said Michael Araten, president and CEO of K’NEX and its subsidiary, The Rodon Group in Hatfield. As part of this initiative, K’NEX delivered the production of Tinkertoy products back to the U.S. in 2012, where it is mass produced by The Rodon Group.
Since The Rodon Group does not make wood products, it needed to find a manufacturer in the U.S.
“We kept at it and finally found a manufacturer in Maine who will manufacturer the Lincoln Logs,” Araten said. “It’s really about substituting our U.S. supply chain for the China supply chain.”
Now, the entire supply chain for the production of Lincoln Logs will be U.S.-based, Araten said.
K’NEX will continue to design Lincoln Logs in Hatfield.
“We’ve started production of the logs now, so we can have product on the shelf in July,” Araten said.
Next year, K’NEX will launch 10 new sets that are made in the U.S.: Horseshoe Hill Station, Country Meadow Cottage, Oak Creek Lodge, 100th Anniversary Tin, Collector’s Edition Village, Wrangler’s Ranch, Wolf’s Lodge, Mountaintop Hideout, Grand Pine Lodge and Colts Creek Command Post.
Next on the company’s agenda is to potentially bring production of toy motors back to the U.S. “That’s our next big initiative,” Araten said.
He said there are many reasons manufacturing is returning to the U.S. from China.
Chinese labor rates are rising dramatically, the U.S. is experiencing an energy boom, manual labor is being replaced by automated systems in U.S. manufacturing facilities and the flexibility and skills of the American workforce are strong, according to Araten.
Lincoln Logs, the popular building toy created nearly a century ago by a son of architect Frank Lloyd Wright, is coming home to the U.S. Read more
Brad DeNoyer, manufacturing and distribution leader for accounting and advisory firm Baker Tilly Virchow Krause LLP, said a lot of middle market manufacturers supplying larger companies are starting to come back to the U.S.
“There’s just not necessarily a drive to go there anymore and there is talk about coming back,” DeNoyer said. “Five to 10 years ago, the work was leaving and going overseas, even the smallest of companies was going to China. Now the faucet has stopped and there is talk about whether to come back.”
But some manufacturers are just starting to have conversations with Milwaukee-based suppliers about re-shoring.
Frank Krejci, president and chief executive officer of Strattec Security Corp., also heads up a contract die-casting division called Strattec Component Solutions. Companies that used to get castings from China are now looking to bring back the work to the U.S., but this push to come back home isn’t going to happen overnight, Krejci said.
“This is not an impulse buy at a grocery store,” Krejci said. “The choice is…do you move inventory or tools? What manufacturers are more likely to do is create a separate set of tools, then ramp up in America and shut down in China. But they are still getting the parts from China.
“But next year they are coming out with a new and improved version of their product. And instead of having the new tools coming from China, now they are making it in America.”
Krejci also said more companies are auditing his firm to determine if they might need his company’s services six months or two years down the line for their next product generation.
What does that mean on the jobs front?
Jeff Sachse, regional economist for the Wisconsin Department of Workforce Development, said that he’s seeing manufacturing companies in the four-county metro region have been hiring at a stable rate. The re-shoring effort has been segmented, but companies have also been reinvesting in some production facilities and cutting costs.
“There is a lot of interest in re-shoring from China…Some of that was driven by labor costs because they dropped during the recession and a lot of companies got rid of the high-wage earners because a lot of that was driven by seniority, but there was definite cost cutting going on,” Sachse said. “So we’re seeing relatively lower wage rates in assembly here than there used to be and we are seeing more competitive costs compared to other countries like China.”
Picture Eugene Hoshiko, File/Associated Press
U.S. manufacturing becoming low cost over the past decade compared with factories in China, Brazil and most of the world’s other major economies.
So says a new private study, which found that rising wages and higher energy costs have diminished China’s long-standing edge over the United States. So has a boom in U.S. shale gas production. It’s reduced U.S. natural gas prices and slowed the cost of electricity.
The Boston Consulting Group is issuing a report on its study of manufacturing costs in the 25 biggest exporting countries. Only seven of those countries had lower manufacturing costs than the United States did this year. And since 2004, U.S. manufacturers have improved their competitiveness compared with every major exporter except India, Mexico and the Netherlands.In 2004, for example, manufacturing in China cost 14 percent less than manufacturing in the United States. By this year, the China advantage had narrowed to 5 percent. If the trends continue, Boston Consulting found, U.S. manufacturing will be less expensive than China’s by 2018.
Over the past decade, labor costs, adjusted to reflect productivity gains, shot up 187 percent at factories in China, compared with 27 percent in the United States. The value of China’s currency has risen more than 30 percent against the U.S. dollar over the past decade.
The higher Chinese currency made goods produced in China and sold abroad comparatively more expensive. And foreign goods became comparatively more affordable in China.
Chinese electricity costs rose 66 percent, more than double the United States’ 30 percent increase. The start of large-scale U.S. shale gas production in 2005 has helped contain electricity bills in the United States and neighboring Canada and Mexico.
China, too, has reserves for shale gas. But it will need years to develop them.
“This is not something you can turn on overnight,” said Justin Rose, a partner at Boston Consulting and co-author of the study.
Brazil has lost even more ground than China. In 2004, manufacturing was 3 percent cheaper in Brazil than in the United States. By 2014, Brazil was 23 percent more expensive. Brazilian factories didn’t improve efficiency enough to offset rising energy and labor costs.
The countries where manufacturing was cheaper than in the United States are Indonesia, India, Mexico, Thailand, China, Taiwan and Russia.
Australia was the most expensive country for manufacturing. Its costs were 30 percent higher than those in the United States.
The survey doesn’t include transportation costs, which vary depending on where goods are shipped. Several countries also face obstacles not captured by Boston Consulting’s manufacturing cost index — from corruption to inefficient government bureaucracies.
SOURCE: Washington Post
Last week, Walmart expanded on the $50 billion Buy American pledge it made last January with a full-fledged Made-in-America summit.
Martin Rawls-Meehan, CEO of Reverie, poses at the company showroom next to a bed that reveals the manufacturing process, in Silver Creek, N.Y. The company is working to expand manufacturing in the United States. (AP Photo/David Duprey)
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“Shipping costs are tremendous,” he says. “I could put that money into the manufacturing side in the U.S.,” he says.
Reverie is one of a growing number of small businesses that are chipping away at the decades-old trend of manufacturing overseas. They’re doing what’s known as reshoring, moving production back to U.S. factories as labor costs grow in countries like China and India and shipping also becomes more expensive. Over the last 20 years, the price of a barrel of oil has risen to about $95 from $20.
There are other issues encouraging the shift. Owners are tired of having to wait weeks for shipments on slow-moving container ships, and they want to get products to customers faster. Some newer businesses aren’t even considering overseas manufacturing. It’s not just small businesses. Some of the largest companies in the U.S. are also joining the trend. Apple Inc. and Caterpillar Inc. are among the manufacturers planning to bring production back to the U.S.
Reverie has had the bases of its beds made in Taiwan since the company was founded. Rawls-Meehan and a business partner in Taiwan agreed that the cost savings and proximity to many customers were good reasons to manufacture there.
“The mentality was that products were going to be manufactured more cheaply in Asia than in the U.S.,” Rawls-Meehan says.
But shipping costs have risen to as much as 20 percent of the wholesale cost of a bed made in Asia. In 2004, it was just 10 percent on some of Reverie’s products. So the company is now making a new line of upscale beds in Silver Creek, N.Y., near Buffalo. Shipping on those beds accounts for no more than 5 percent of the wholesale price. That offsets the higher cost of labor in this country.
Rawls-Meehan is considering moving more of his manufacturing to the U.S., but because the company also sells beds to Asia and Australia, he says it likely will always have overseas production.
A good deal of U.S. manufacturing shifted to foreign shores in the 1990s and early 2000s. Workers in China, India and other countries earned far less than workers in U.S. factories. That lowered costs substantially for U.S. companies. Between 1997 and 2008, the U.S. lost nearly 4.5 million manufacturing jobs, according to the Census Bureau. And the amount of overseas manufacturing by U.S. companies grew 141 percent between 1997 and 2010, according to the government’s Bureau of Economic Analysis.
But the growing middle class in countries such as China and India have been demanding and getting higher wages. In Asia, labor costs are rising 20 percent a year, compared to 3 percent in the U.S., says David Simchi-Levi, a professor at the Massachusetts Institute of Technology whose specialties include supply chain management.
A weaker dollar has also made foreign-made goods more expensive. A study by the consulting firm AlixPartners predicts that the costs of manufacturing in the U.S. and China on average would be equal in 2015. For products including disposable packaging and some metal parts, costs are already equal or less when they’re made in the U.S., the study found.
Reshoring began picking up momentum in 2010 after the recession and as the dollar began to lose value, says Lisa Ellram, a professor at Miami University of Ohio who specializes in supply chain management. Businesses that were unsure how strong their sales would be in a weak economy didn’t want to make as many commitments to far-flung factories.
“They really just didn’t have as much certainty about their volume and their needs, so it was maybe a little bit easier to deal with somebody closer,” she says.
Innovations in manufacturing in the U.S. are encouraging the shift. Many U.S. companies use robots and highly specialized processes that allow them to make custom components for the automotive and aerospace industries.
“Instead of hiring people, we’re using robots,” Ellram says. Chinese companies are also using robots, but U.S. manufacturers are ahead of them, she says.
The government doesn’t have figures tracking how much manufacturing companies are bringing back the U.S., according to Jeannine Aversa, a spokeswoman with the Bureau of Economic Analysis. About 50,000 manufacturing jobs came back to the U.S. between 2010 and 2012, many of them in factories that turn out electrical equipment and components and metal parts, according to the Reshoring Initiative, a nonprofit group that advocates moving manufacturing back to the U.S.
The trend could gain momentum because demand for U.S. goods is growing. Ninety-five percent of manufacturers surveyed last year said they are increasing their purchases from domestic companies, or keeping them at the same level as 2011, according to ThomasNet, a company that operates an online marketplace where businesses can connect with manufacturers, distributors and service companies.
The amount of time it takes to get goods made overseas is another reason manufacturing is coming back to the U.S. It’s taking longer to ship finished products because cargo ships have lowered their speed by 20 percent to conserve fuel, Ellram says. That reduction adds four or five days to a container ship trip from China, she says. It takes two weeks or more for a ship to travel from China to the U.S., depending on which ports it departs from and where it makes its deliveries.
Shipping times matter for companies that need to get their goods to market quickly. Now that Cotton Babies, a manufacturer and retailer of baby merchandise, has moved manufacturing of its cotton diapers to Denver from Egypt, it has cut in half the time it takes to get them to market, says CEO Jennifer Labit.
Product development can be slowed by the distance between designers in the U.S. and manufacturers in other countries, Labit says. Communication takes longer and expensive overseas trips are often necessary to make sure that the products are being made to specifications.
Quality, and the ability to fix problems faster, gives small domestic manufacturers an advantage over foreign companies, Ellram says.
“Those are the things that (domestic) small businesses can use as a selling point,” she says.
A myriad of problems helped Reading Truck Body decide to bring manufacturing of truck parts back to the U.S. from China.
Shipments were disorganized. The compan
y didn’t know until it opened containers which parts had been shipped. That meant it couldn’t be sure ahead of time which of its truck bodies could be finished and sold, national sales director Craig Bonham says. Reading, based in Reading, Pa., also was concerned about the amount of time it took to get shipments.
“It spans about three months from purchase order to the time you get products to North American shores,” Bonham says. “That timeline did not allow us to become reactionary to market demands.”
Reading lost some sales because it didn’t have the parts to finish a truck a customer wanted. But the impact of unpredictable shipments went beyond lost revenue — it also led to chaos on the production line and frustration among the company’s managers.
“You feel a larger sense of dependency when you’re relying on someone that far away,” Bonham says. The company received its last shipment from Asia in December.
It also dealt with high expenses to send two employees to China each quarter, at a cost of $100,000 a year.
But with production now entirely in the U.S., the company is more confident.
“We have more control of our destiny,” he says.
Learn how you too can begin reshoring and creating jobs here in the U.S.A. Check out how Harry Moser and his team at the Reshoring Initiative can help. Reshoring Initiative: http://www.reshorenow.org/
