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Manufacturing Jobs: How to Turn America’s Job Prospects Around Through Reshoring



Foxconn Assembly Line

Workers at a Foxconn plant assemble electronic circuit boards (AFP).

Reversing a Decade of Job Losses

What does a manufacturer do when it’s struggling with excessive costs?  One of the most common reactions in recent years has been to pack up and move to another country or continent where it can bring its costs of production down.

And this is just what’s happening to a number of factories, except these are Asian plants moving production to the United States.

The Bureau of Statistics shows that close to six million manufacturing jobs were lost in the decade from 1999 to 2009, representing over one third of the sector’s workforce.  But since 2010, this trend has turned around, recovering 550,000 jobs over the period, the first uptick since 1997.

 

Leading the Pack: Large Manufacturers Build New Facilities

The Wall Street Journal reports that Zhu Shanqing, chairman of Keer Group, is to spend $218 million in South Carolina to build a plant to spin yarn, adding 500 manufacturing jobs to the state’s economy.  In another twist, China’s largest air conditioning manufacturer, Gree Electric Appliances, which manufacturers air conditioners sold in the US under a variety of different brands, is planning to build a plant in the US in 2014, although it wouldn’t say exactly where until the deal is sealed.  And Hankook Tires, South Korea’s largest tiremaker, is planning to build a factory in Tennessee, to be in production by 2016, which will produce 11 million tires per year for the American market.

In a further strengthening of the trend, Chinese Lenovo Group, the world’s second largest manufacturer of personal computers, is planning to produce its ThinkPad laptop computers in North Carolina.  Also, the world’s largest electronics contract manufacturer, Taiwan-based Foxconn Technology Group, which produces well-known brands under contract such as the BlackBerry, iPhone, Kindle and PlayStation, is to invest $30 million in a new robotics plant in Pennsylvania, with the possibility of a second plant in Arizona.

It’s Not Just Public Relations: the Myth of Cheap Asian Labor

Moves to reshore their manufacturing jobs have been driven in part by public pressure, for companies such as Apple, Hewlett-Packard and Walmart.  However, the story isn’t only about labor costs.  Walmart CEO Bill Simon told a recent manufacturing conference that in addition to rising Asian labor costs, oil and transportation costs are high and becoming increasingly uncertain.  While in absolute terms Asian hourly wages are significantly less than the hourly wages of American manufacturing jobs, labor only represents about one tenth of total production costs, on average.

A series of reports from the Boston Consulting Group predicts that the US will reach cost parity with China by 2015 and that by the end of the decade as many as five million manufacturing jobs will be added.  Chinese labor rates are rising 20% per year, according to the Manufacturer Alliance for Productivity and Innovation (MAPI), at the same time that the financial crisis has hit US wages.

How the American Trade Deficit Works in its Favor



The trade deficit that the United States has with China is having an unexpected result when it comes to exporting goods from the US to China.  With transportation being one of the biggest expenses in overseas shipment, containers and cargo ships which leave for China empty after having arrived filled with Chinese-made goods allow American exporters to move their products to the Chinese market at a fraction of the cost of goods coming inbound.  MAPI points out that American manufacturers actually have an advantage when it comes to shipping costs.

Transportation and Energy: a Key Reality

Shipping from China can be a major cost and headache which is set aside when manufacturing in America.  Eliminating this factor from the supply chain can save both time and money.  In a recent cost teardown, market researcher IHS found that Google is paying somewhat less overall to produce the Moto X smartphone in Texas, creating 2000 manufacturing jobs, than Samsung is paying to make its popular Galaxy S4 smartphone in Korea.  Although the wages of manufacturing jobs are higher in Texas, they amount to only 5% of the total cost of the Moto X.  With as little as four days lead time to deliver orders, Google is able to provide customized products to its customers while customers of its overseas competitors are waiting weeks for delivery.

Energy costs are falling rapidly in the US as shale gas is exploited, making the US a net exporter of energy, and oil finds are reducing or eliminating the need to import oil from shaky overseas suppliers.  This translates into lower costs for electricity and transportation for American manufacturers, adding to the incentive to add manufacturing jobs here.

It’s Not Only About Costs: Quality, Proximity, Simplicity

China has long been seen as the place to manufacture to obtain a competitive advantage in terms of price.  But as the price advantage is being eroded, manufacturers are becoming less tolerant of other problems that come with importing from the other side of the globe.

Quality has always been a problem.  Rigid controls and inspections need to be conducted from a distance to ensure that products are produced with appropriate quality.  A number of other problems have cropped up, such as worker exploitation, with quality of the production facility and methods coming into the public limelight.

Manufacturers are increasingly looking to eliminate these problems, with less of a cost incentive to work around them.  When the manufacturing jobs are close at hand maintaining control over quality is relatively simple, in comparison to overseas production.  Having production closer to the customers also has a significant effect in improved customer service.  These factors can help boost sales, ultimately helping the bottom line.

These are a number of great reasons for bringing manufacturing jobs home.

Do you have more stories of reshoring manufacturing jobs?

Join the conversation and add your comments below.



13 comments to Manufacturing Jobs: How to Turn America’s Job Prospects Around Through Reshoring

  • […] Manufacturing jobs are recovering from a decade of job losses as reshoring moves production from Asia to America. Reasons to justify the move back.  […]

  • Reshoring manufacturing is a key element in solving our nation’s economic problems.

    The positive effects of a robust manufacturing sector are measured well beyond manufacturing. Reports from the National Association of Manufacturing (NAM) indicate every dollar that’s created in manufacturing, has a 1.4 multiplier effect on the entire economy.

    Also, two thirds of U.S. research and development is concentrated in manufacturing making it a high-powered economic sector.

    The manufacturing multiplier effect drives other sectors, creating jobs and investment in non-manufacturing sectors.

    Reshoring manufacturing is becoming more attractive and a good strategic move for many companies due to rising wages in Asian countries, sourcing risks due to long supply chains, flexibility to respond to customers changing needs, intellectual property risks and the benefits to innovation.

    The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software can help corporations calculate the real P&L impact of reshoring or offshoring. In many cases companies will find that, although the production cost is lower offshore, the total cost is higher. TCO Estimator http://www.reshorenow.org/TCO_Estimator.cfm

    Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability if they used TCO instead of price to make their decision.

    Readers can help bring back jobs and increase profitability by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore.

    You can reach Harry Moser, founder/president of The Reshoring Initiative at harry.moser@reshorenow.org | http://www.reshorenow.org

    I also recommend reading “ReMaking America” the AAM’s new book on the wealth and growth opportunities of manufacturing in the U.S. Harry Moser, founder of The Reshoring Initiative wrote an excellent chapter on Reshoring. http://americanmanufacturing.org/remake-america/

    Below are some companies that have reshored manufacturing and jobs back to the U.S. in the last year.

    * Apple reshored production and jobs to Mesa, Arizona. They will be producing high quality screens for their products.

    * Michelin is reshoring their earth mover tire production to Anderson, South Carolina.

    * Trident Case reshored production and jobs to Ontario CA. They will be producing their mobile device cases.

    * Redman & Associates is reshoring production of toys to Northwest Arkansas.

    * Ez-go owned by Textron brought work and jobs to Augusta in the production of golf carts.

    * Heinz is closing 2 U.S. plants and one in Canada and shifting production of some of their food products to Massillon, OH

    * Harbec Inc. which produces prototypes, highly tolerance tooling, machined components and quality injection molded parts reshored production to Ontario, NY

    * Daddario & Company, maker of instruments, has reshored production to Farmingdale, NY

    We invite readers to reevaluate offshoring decisions, use TCO and help make Reshoring the #1 trend in 2014!

    • John Fossey

      Sandy, Many thanks for the insightful comment. Total Cost of Ownership is certainly something that manufacturers need to look closely at, since it relates to both the bottom line and long term sustainability. The results may be surprising in many cases.

      John

  • Thank you John – I enjoyed the article!

  • Even small to mid-size U.S. manufacturers can win business back from China if they focus on the three key principals of FEWER, FASTER and FINER. These principles exploit the weaknesses in the China manufacturing business model.

    The “Fewer” principle means shorter, and/or more customized production runs. Keep in mind that the China manufacturing business model was built on the concept of long runs of commodity products. However, today’s B2B buyer wants to minimize parts inventory to keep costs lower, and today’s consumer wants a product more tailored to her own individual preferences. A small U.S. manufacturer who can cater to the desire for smaller or more customized orders in a B2B or consumer environment creates a competitive advantage that an overseas manufacturer cannot match. The use of 3-D printers is an extreme example of the “Fewer” principle in action.

    The “Faster” principle simply means quick turns on product orders. If it takes an overseas manufacturer three months to ship a product, you must find a way to ship it in three weeks, for example. This allows the customer to maintain lower inventory levels and maximize their cash cycle. And if you are making a consumer product, being “Faster” allows you to satisfy the consumer’s desire for instant gratification.

    The “Finer” principle means manufacturing safe, high quality products. The Consumer Products Safety Improvement Act has dramatically altered the manufacturing landscape in favor of companies that are meticulous about quality. I’m a strong proponent of those tougher guidelines because they force U.S. importers to think twice about the integrity of their supply chain before they bypass U.S. manufacturers for overseas sources. If China manufacturers will sell lead-tainted toys to Mattel, what would they sell to a smaller importer?

    Of course, it is most effective if a manufacturer implements all three principles. Given the competitive situation, two out of three may not be enough.

  • Great points!

    Would you like to connect with the founder of the Reshoring Initiative Harry Moser?

  • […] word common to manufacturing for some decades, changes in the economic environment are making “homeshoring” more and more attractive, with a number of manufacturers actively moving their offshore […]

  • I am pleased to see manufacturing facilities and jobs slowly returning to America. There was a time when people sought to purchase goods made in America. Now there is a growing understanding of the standards used here to produce items and the benefits that exist for consumers as a result of these standards.

  • […] According to the Bureau of Statistics, almost six million manufacturing jobs were sent overseas in the 10 years from 1999 to 2009 – totaling one third of the U.S. manufacturing industry’s workforce. Since 2010, however, the trend has reversed – recovering 550,000 jobs. […]

  • I doubt if re-shoring is the answer to our economic crisis since free trade made production portable based on cheaper labor markets. More importantly, we need to start all approaches with the emphasis on Made
    in the USA – not built or assembled but Made in the USA.

    There are about five levels of added value from the raw product stage to the retail or end user stage. The added values have to be in place in order to recycle economies. When these added value stages are some place else in the world, the value added money goes there and does not stay in place to recycle the local economy.

    The value of workers and labor has been degraded and deflated too. This along with the trade deficit represents trillions of dollars lost forever. Bringing back lower paid jobs will not uplift the working poor class which was created by free trade.

    Our economies based on making money on money instead of making things are burning out. Pres. Obama had to bail it out when he took office while ignoring the suffering of all who lost everything due to free trade.

    Free trade remains the major cause of our economic crisis. It is economic suicide. http://tapsearch.com/tapartnews http://ray-tapajna-info.net/flatworld

  • Deanna Johnston Clark

    So Western civilization is to cave completely…all its efforts for human rights, justice, dignity, equality are going to be bulldozed to make way for the New American manufacturing resurrection with poor, grateful illegals from central America working for peanuts.

    The BRICs nations are getting their own banks and money…imports will quadruple in cost…and bringing the sweat system home is the answer. Oh well, we really loved the cheap stuff…now we get to make it ourselves! That explains why these new kids have to get used to institutional living quarters. Soon Made in USA will be covered with the same old sweat.

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