Behind the American Export Surge
Export manufacturing has recently become the unsung hero of the U.S. economy. Despite all the public focus on the U.S. trade deficit, little attention has been paid to the fact that the country’s exports have been growing more than seven times faster than GDP since 2005. As a share of the U.S. economy, in fact, exports are at their highest point in 50 years.
But this is likely to be just the beginning. We project that the U.S., as a result of its increasing competitiveness in manufacturing, will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade. About two-thirds of these export gains could come from production shifts to the U.S. from leading European nations and Japan. By 2020, higher U.S. exports, combined with production work that will likely be “reshored” from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.
Our perspective is based on shifts in cost structures that increasingly favor U.S. manufacturing. In the first two reports in our Made in America, Again series, we explained how China’s once overwhelming production-cost advantage over the U.S. is rapidly eroding because of higher wages and other factors—and how these trends are likely to boost U.S. manufacturing in specific industries. Below, we focus on America’s increasing cost-competitiveness in manufacturing compared with leading advanced economies that are major exporters.
Our analysis suggests that the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. We estimate that by 2015, average manufacturing costs in the five major advanced export economies that we studied—Germany, Japan, France, Italy, and the U.K.—will be 8 to 18 percent higher than in the U.S. Among the biggest drivers of this advantage will be the costs of labor (adjusted for productivity), natural gas, and electricity. As a result, we estimate that the U.S. could capture up to 5 percent of total exports from these developed countries by the end of the decade. The shift will be supported by a significant U.S. advantage in shipping costs in important trade routes compared with other major manufacturing economies.
These shifting cost dynamics are likely to have a significant impact on world trade. China and the major developed economies account for around 75 percent of global exports. And the U.S. export surge will be felt across a wide range of U.S. industries.
The most profound impact will likely be on industrial groups that account for the bulk of global trade, such as transportation equipment, chemicals, machinery, and computer and electronic products. Production gains will come in several forms. In some cases, companies will increasingly use the U.S. as a low-cost export base for the rest of the world. In other cases, U.S. production will displace imports as both U.S. and foreign companies relocate the manufacturing of goods sold in the U.S. that otherwise would have been made offshore.
The full impact of the shifting cost advantage will take several years to be felt in terms of new production capacity. And the magnitude of the job gains will depend heavily on the degree to which the U.S. can continue to enhance its global competitiveness. One of the biggest challenges facing U.S. manufacturers is the supply of skilled labor. As we explained in a previous publication, however, our analysis shows that, in the short term, any U.S. manufacturing skills gap is unlikely to be significant enough to curtail a U.S. manufacturing resurgence. Rather, such shortages are more of a long-term risk if action is not taken soon to train and recruit new skilled workers.
Companies should, of course, continue to maintain diversified manufacturing operations around the world. But at the same time, they must be aware that the structural changes in production cost structures represent a potential paradigm shift for global manufacturing that warrants immediate attention.
The Pendulum Swings Back
For much of the past four decades, manufacturing work has been migrating from the world’s high-cost to its low-cost economies. Generally, this has meant a transfer of factory jobs of all kinds from the U.S. to abroad.
The pendulum finally is starting to swing back—and in the years ahead, it could be America’s turn to be on the receiving end of production shifts in many industries. In previous reports, we cited a number of examples of companies that have shifted production to the U.S. from China and other low-cost nations. These companies range from big multinationals like Ford and NCR to smaller U.S. makers of everything from kitchenware and plastic coolers to headphones. More recently, computer giant Lenovo opened a plant to assemble Think-brand laptops, notebooks, and tablets in North Carolina. Toshiba Industrial has moved production of its hybrid-electric vehicle motors from Japan to Houston. Airbus has broken ground on a $600 million assembly line in Mobile, Alabama, for its A320 family of jetliners; the facility will create up to 1,000 high-skilled jobs. Flextronics, one of the world’s largest electronics-manufacturing-services companies, has announced that it will invest $32 million in a product innovation center in Silicon Valley. The company’s CEO was quoted in the Wall Street Journal as saying that Flextronics may need to add 1 million square feet of manufacturing capacity in the U.S. over the next five years, depending on economic conditions.
There also is early evidence that foreign manufacturers are starting to move production to or expand production capacity in the U.S. for export around the world.
- Toyota has announced that it is exporting Camry sedans assembled in Kentucky and Sienna minivans made in Indiana to South Korea. The company has also suggested that it may ship U.S.-made cars to China and Russia. In press reports, the president of Toyota Motor North America was quoted as saying, “This is just the beginning of a new era of North America being a source of supply to many other parts of the world.”
- Honda is adding shifts at its plants in Indiana and Ohio to increase exports. The company has said it expects to double its exports of U.S.-made vehicles in the next few years.
- Siemens announced it will build gas turbines in North Carolina that will be used to construct a large power plant in Saudi Arabia.
- Yamaha has transferred production of all-terrain vehicles from overseas facilities to Newman, Georgia, where it directly employs 1,250 factory workers. Yamaha has also opened a second assembly plant in Newman to produce future Side-by-Side products, including a three-person vehicle called the Viking, for worldwide distribution. Yamaha says it could add another 300 jobs in Georgia over the next three to five years.
- In 2011, Rolls-Royce began making engine discs for aircraft at Crosspointe, a world-class manufacturing facility in Prince George County, Virginia. The company said that some parts made in Virginia would be shipped to Europe and Asia to be assembled in jet engine factories. In coming years, Rolls-Royce plans to invest over $500 million in Crosspointe, generating more than 600 jobs, to serve the global economy.
- Michelin of France announced that it will invest $750 million to build a new factory and expand another one in South Carol
ina
to make large tires for earth movers used in the mining and construction industries. The Financial Times reported that at least 80 percent of the additional output will be exported.
While the impact of this trend on U.S. jobs is currently modest, we expect a significant increase in such announcements starting around 2015, as the economic case for reshoring to the U.S. grows stronger—and as companies adjust their global manufacturing footprints accordingly.
The U.S. as a Low-Cost Country
The U.S. now has a distinct production-cost advantage compared with other developed economies that are leading manufacturers. We estimate that due to three factors alone—labor, natural gas, and electricity—average manufacturing costs in the U.K. will be 8 percent higher than in the U.S. by 2015. Costs will be 10 percent higher in Japan, 16 percent higher in Germany and in France, and 18 percent higher in Italy. (See Exhibit 1.) There are three key drivers of this cost advantage.
Labor
The U.S. labor market is currently more attractive than that of all other major manufacturers among the developed economies. This is especially true when factory wages are adjusted for output per worker, which is considerably higher in the U.S. than in Europe and Japan. Only a decade ago, average productivity-adjusted factory labor costs were around 17 percent lower in the U.S. than in Europe, and only 3 percent lower in the U.S. than in Japan. The productivity gap between these nations and the U.S. has widened considerably over the past ten years. We project that by 2015, average labor costs will be around 16 percent lower in the U.S. than in the U.K., 18 percent lower than in Japan, 34 percent lower than in Germany, and 35 percent lower than in France and Italy. (See Exhibit 2.)
An added advantage of the U.S. labor market is its relative flexibility. The Fraser Institute ranks the U.S. as the world’s third-most-favorable economy in terms of labor market regulation. In contrast, Japan and the U.K. rank 14 and 15, Italy ranks 72, France ranks 94, and Germany ranks 112.
A major reason for this high ranking is that it is far easier and less costly in the U.S. than in most other advanced economies to adjust the size of the workforce in response to business conditions. In Germany, for example, we estimate government-mandated costs of approximately $8 million to shutter an average, 200-worker plant and more than $40 million to close a 1,000-worker plant. These costs are associated with the need to comply with rules governing severance pay and the advance notice that must be given to long-term employees. However, the actual cost of shutting a German factory can be significantly higher. German law mandates that workers may remain on the job, at full pay, for anywhere from a few months to more than a year, depending on how long they have been employed by the company, while layoff terms are being negotiated and after notification of a layoff has been received. Specific union contracts, asset write-downs, requirements to retrain workers, and other factors can also add to exit costs. These are major considerations when European companies decide where to make new long-term investments in manufacturing capacity.
Energy
Rapid technological progress in hydraulic fracturing is making it more economically feasible to unlock vast U.S. natural gas and oil deposits from shale. Since 2003, U.S. production of shale gas increased more than tenfold. This has helped push down the U.S. wholesale price of natural gas by 51 percent since 2005. By 2020, recovery costs from shale are expected to be half what they were in 2005—giving the U.S. a much larger supply of inexpensive natural gas. By 2035, U.S. shale-gas production is projected to double again, to 12 trillion cubic feet.
Most public attention to this development has focused on the implications for U.S. energy security. Less appreciated is the fact that cheap domestic sources of natural gas translate into a significant competitive advantage for a number of U.S.-based industries. Natural gas costs anywhere from 2.6 to 3.8 times higher in Europe and Japan than in the U.S. (See Exhibit 3.) The American advantage will likely grow further in the future: the most recent estimates suggest that the U.S. has more than 350 trillion cubic feet of proven shale-gas reserves, plus another 1,600 trillion cubic feet of potential shale-gas resources. That is more than four times the reserves of Western Europe. Japan’s reserves of both shale and conventional gas are negligible.
There are two important implications for industry. First, natural gas is a key feedstock for chemicals and plastics and is a significant cost in the manufacture of primary metals, paper, synthetic textiles, and nonmetallic mineral products. Second, gas-fired power plants are an important source of electricity in the U.S. So cheap natural gas will contribute to keeping power costs lower for U.S.-based industry. Industrial electricity prices are currently 61 percent higher in France, 92 percent higher in the U.K., 107 percent higher in Germany, 135 percent higher in Japan, and 287 percent higher in Italy. Lower electricity rates add a further cost advantage of several percentage points to energy-intensive U.S.-based industries such as metals and paper.
Shipping Rates
Our calculations of manufacturing costs in the U.S. and other developed economies did not factor in a projection for shipping expenses. On several important international trade routes, however, transportation costs give U.S.-based manufacturers another significant advantage. The large trade deficits that the U.S. has run up in the past decade have had a perverse impact on the shipping industry. Containers have been arriving in U.S. ports filled with imported products—and sometimes departing empty. The ports of Los Angeles, Long Beach, New York, Seattle, and Tacoma all process more than twice as many U.S. imports as exports. Meanwhile, capacity at U.S. ports nearly doubled between 2000 and 2008. As a result, the capacity utilization rate at U.S. ports was only around 54 percent as of 2010—one of the lowest rates in the world. In Europe, ports in 2010 were operating at 59 percent of capacity. Utilization rates were at 69 percent in Northeast Asia and 76 percent in Southeast Asia.
The imbalanced trade flow has translated into low outbound-freight costs on a number of important trade routes. In late 2011 and early 2012, it cost an average of $3,900 per 40-foot equivalent unit (FEU), or around 72 cubic meters of container space, to ship goods from Yokohama to Rotterdam. The comparable shipping rate from New York City was $1,400. Although freight costs from the west coast of the U.S. to Japan are only slightly lower than those from Europe to Japan, U.S. exporters have an advantage because the shipping distance is shorter, meaning they can more quickly get their goods to Japanese buyers. Because so many shipping containers from the U.S. to China are returning empty, freight costs from the U.S. to China are particularly cheap—just $850 per FEU. That compares with $700 per FEU from neighboring Japan. As a result, Japan’s proximity to China will not necessarily be enough to offset the U.S. advantage in lower overall production costs for many products that are not time sensitive.
One event that c
ould sign
ificantly change the cost balance, of course, is a sharp depreciation of the euro against the U.S. dollar. The dollar did indeed increase in value from around $1.60 per euro in early 2008 to around $1.20 per euro in mid-2012 as a result of the global financial crisis. But the dollar would have to appreciate even more dramatically—to below $1 per euro—for Germany, France, and Italy to approach cost parity with the U.S. by 2015. We will continue to monitor this and other cost factors as we continue our research on the competitiveness of the major manufacturing economies.
Many may assume that most of the production displaced from these developed economies will shift to China rather than to the U.S. But for reasons we explained in an earlier report in this series (Made in America, Again: Why Manufacturing Will Return to the U.S., BCG Focus, August 2011), wages have been rising so rapidly in China that its cost advantage over the U.S. by 2015 is projected to be only around 5 percent for many goods exported to North America. When logistics, shipping costs, and the many risks of operating extended global supply chains are factored in, it will be more economical to make many goods now imported from China in the U.S. if they are consumed in the U.S.
The Impact on U.S. Exports
The U.S. export sector is already a little-noticed bright spot in the U.S. economy. Since 2005, export growth has averaged nearly 8 percent per year—despite the global recession of 2008 to 2009. Exports of U.S. goods, excluding food and beverages, now account for around 10 percent of U.S. GDP, the largest share in five decades. In the 1960s, when the U.S. was the world’s dominant manufacturer, exports accounted for only around 4 percent of GDP. What’s more, while the share of global exports by Western Europe and Japan declined between 2005 and 2010, U.S. exports have held steady at around 11 percent.
This momentum is likely to accelerate. Because of lower costs, we project that by the end of the decade, the U.S. could capture $20 billion to $55 billion in annual exports from the four Western European nations we studied, which would represent 2 to 5 percent of those nations’ total exports. In addition, we estimate that the U.S. could capture $5 billion to $12 billion in Japanese exports by that time, or 1 to 2 percent of Japan’s total current exports.
The Impact on U.S. Jobs
We estimate that the increase in U.S. exports and in the domestic production of goods that otherwise would have been imported will create between 600,000 and 1.2 million direct factory jobs. Another 1.9 million to 3.5 million jobs could be created indirectly in related services such as retail, transportation, and logistics. (See Exhibit 4.) We base these estimates on average output per worker and the multiplier effect in each industry category. In the transportation equipment sector, for example, every $140,000 in additional output on average creates one new job. A boost in U.S. production of $3 billion to $9 billion, therefore, would create 20,000 to 65,000 factory jobs. Each transportation-equipment production job, in turn, creates 3.6 jobs indirectly in other areas of the economy. That translates into an overall job increase of 110,000 to 290,000 in the U.S. transportation-equipment industry as a result of increased exports and reshored production.
If our projection of 2.5 to 5 million new U.S. jobs is accurate, the U.S. unemployment rate could drop by 2 to 3 percentage points. That would push the U.S. rate toward the “frictional” level, meaning the unemployment that normally occurs in an economy as workers change jobs.
Where the Gains Will Come
The gains in U.S. exports are likely to be felt across a wide range of industries. The U.S. is particularly well positioned compared with the five developed economies to increase exports in seven industrial categories: transportation equipment, chemicals, petroleum and coal products, computer and electronic products, machinery, electrical equipment, and primary metals. (See Exhibit 5.) These seven groups of industries accounted for roughly 75 percent ($12.6 trillion) of total global exports in 2011. Let’s look at three of them a little more closely.
Transportation Equipment
This industrial category includes cars, trucks, buses, and aircraft. We project that in 2015, the U.S. will have an 11 percent cost advantage over Germany, which exported $319 billion in transportation equipment in 2011, and a 6 percent advantage over Japan, which exported $191 billion. The lower cost of labor accounts for virtually the entire U.S. cost advantage in this category. When adjusted for productivity, Japanese labor costs in transportation equipment manufacturing will be 22 percent higher than those of the U.S. German, French, and Italian labor costs will be 50 percent higher.China will still have an average production-cost advantage of around 6 percent in 2015 for transportation equipment. When shipping and other costs are accounted for, however, it will make more economic sense for such products to be made in the U.S. if they are consumed in the U.S.We project that by 2015, the U.S. will gain $3 billion to $9 billion in exports of transportation equipment from Western Europe and Japan.
Chemicals
The low cost of natural gas in the U.S. will become a particularly significant factor in the production of chemicals, where natural gas is often an important feedstock. Production costs in Germany, a leading chemical exporter, are projected to be 29 percent higher than in the U.S. in 2015. Chemical production costs are projected to be 17 percent higher in the U.K., 27 percent higher in Italy and Japan, and 28 percent higher in France.
A breakdown of the cost structures in each country shows why. Although the cost of German labor will be more than 50 percent higher, for example, the biggest impact will be from differences in natural gas prices, which will be more than three and a half times higher in Germany than in the U.S. Put another way, while natural gas will account for 8 percent of the total production cost of U.S.-made chemicals, it will account for 29 percent of costs in Germany. In the case of Japan, natural gas costs in chemical manufacturing will be nearly four times higher than in the U.S. in 2015. A further consideration is electricity rates, since chemical production is power intensive. We estimate that lower electricity rates will give the U.S. an additional cost advantage, ranging from 1 percentage point over the U.K., France, and Germany to 4 percentage points over Italy.
The U.S. will have a significant cost advantage over China in chemical production in 2015 as well. We project that costs in China’s Yangtze River Delta region will be 16 percent higher, with natural gas prices more than offsetting any advantage that China will have in labor costs.
We project that by 2015, the U.S. will gain $7 billion to $12 billion in chemical exports from Western Europe and Japan.
Machinery
This broad category includes everything from construction and industrial machinery to engines and air conditioners. The U.S. will have a manufacturing cost advantage in machinery of around 7 percent over Japan, where machinery is a $143 billion export industry. Machinery production costs will be around 14 percen
t high
er in Germany, which exported $216 billion in machinery in 2011, 14 percent higher in France, and 15 percent higher in Italy. Labor, a major cost in machinery manufacturing, is the big differentiator.
Projected total costs for machinery production will be around 8 percent lower in China in 2015. But when other costs are considered, it will likely be more cost-effective to produce much of the machinery that is sold in the U.S. in the U.S.
We project that by 2015, the U.S. will gain $3 billion to $12 billion in machinery exports from Western Europe and Japan.
The Key Messages for Manufacturers
Such core U.S. cost advantages as cheap energy and labor adjusted for productivity are likely to persist for at least the next five to ten years. As a result, the steady emergence of the U.S. as one of the lowest-cost countries of the developed world is a trend that is likely to have major implications for manufacturers around the world in a wide range of product categories across a wide range of industries. In the near term, the new math of manufacturing requires that many companies reassess their global production strategy.
We have long advised companies to maintain a diversified global manufacturing footprint in order to have the flexibility to respond to unanticipated changes and to expand or reduce production quickly in response to the competitive needs of specific markets. This advice continues to hold true. We also advise companies to carefully consider the total cost of ownership over the lifetime of the investment when deciding where to build new production capacity.
The shifting cost dynamics, however, suggest that more companies should consider the U.S. as a manufacturing option for global markets. A number of leading manufacturers based in Europe and Asia have already begun to use the U.S. as a major export platform or have announced plans to do so. Others are relocating offshore production to the U.S. of goods to be consumed in North America. We believe that these companies are the early movers in what is likely to become a more widespread trend by 2020.
Companies that fail to take into account these cost shifts when making long-term investments could find themselves at a competitive disadvantage. Improving U.S. cost-competitiveness compared with developed economies, combined with rising costs in such offshore-manufacturing havens as China, represent what we believe is a paradigm shift that could usher in an American manufacturing renaissance.
Authors and Acknowledgments
To Contact the Authors
Harold L. Sirkin
Senior Partner & Managing Director
Chicago
Michael Zinser
Partner & Managing Director
ChicagoJustin Rose
Partner & Managing Director
Chicago
AcknowledgmentsThis report would not have been possible without the efforts of Justin Baier, Brianne Blakey, Collin Galster, Matt Gamber, Louis Hobson, Frank Roberts, Daniel Spindelndreier, and Steven Won of The Boston Consulting Group project team. The authors also would like to thank Alexandra Corriveau, Madeleine Desmond, David Fondiller, Beth Gillett, and Mike Petkewich for their guidance and interaction with the media, Pete Engardio for writing assistance, and Katherine Andrews, Angela DiBattista, Gina Goldstein, and Sara Strassenreiter for editing, design, and production.
Top 4 Manufacturing Issues in America – Part 1 of 2
in UncategorizedClosing the Manufacturing Skills Gap
Manufacturing has evolved far beyond the days of the moving assembly line when thousands of factory workers labored side by side in repetitive motion. The “Skills Gap” is one of the most talked about manufacturing issues in America, with most of the major news outlets covering the issue over the last year in great detail.
Today, manufacturing is highly technical and requires understanding and proficiency in a wide variety of competencies. However, this demand for highly skilled workers comes at a time when the industry is facing the retirement of a large percentage of its workforce and an incoming generation of workers who lack the skills and technical knowledge needed for U.S. manufacturing. The oldest baby boomers turned 65 on Jan. 1, 2011, and every day thereafter for about the next 19 years, some 10,000 more will reach the traditional retirement age, according to the Pew Research Center. Many manufacturers are seeing an advantage to “reshore” their production back to North America, but they can only do this if they have access to skilled workers.
A key component has been the development of the (National Association Of Manufacturers) NAM-Endorsed Manufacturing Skills Certification System—a system of stackable credentials applicable to all sectors in the manufacturing industry.
Additionally, in June 2011, President Obama announced that the Skills Certification System was the national talent solution for closing the skills gap addressing this top of many manufacturing issues in America. In addition to supporting and advancing the Certification System, the Society of Manufacturing Engineers (SME) Education Foundation encourages youth to get involved in manufacturing technologies through STEM-related activities in the K–12 levels.
Reshoring/Insourcing Manufacturing to the United States for Increased Quality
Now in 2013, another major of the manufacturing issues is reshoring and insourcing. More companies are moving their services and manufacturing operations back to the United States. Caterpillar moved operations from China to Mexico and the US. Dell moved its customer support from India to the US. K’Nex Brands moved manufacturing from outsourcing in China to the US. K’Nex said, ‘by moving production closer to the US retailers, K’Nex can react faster to fickle shifts in toy demands and deliver what is needed faster’. It also has greater control over quality and materials, which is crucial to product safety.
The common factor of reshoring is quality. When you have lack of control or visibility of your suppliers, partners or the supply chain, you will end up with inferior products while suffering from reliability and safety issues. There needs to be consistent processes, a harmonized approach to safety and risk based management of issues, suppliers, standards and collaboration. Quality is touted as a competitive advantage – look at the number of TV commercials with the J.D. Power & Associates quality award, or Malcolm Baldridge Quality award. Number 2 in our top manufacturing issues blog, reshoring, is still an ongoing debate, and time will tell if this trend continues, or if offshoring will cycle back in the next 20 years.
Trends in Manufacturing Fuel: Oil vs. Natural Gas
Always one of the manufacturing issues manufacturing executives must consider is fuel and energy use. Oil has always, and currently still is, the most prevalent form of fuel and energy used in both the shipping of manufacturing products and in the process of manufacturing. Oil has also made the American manufacturing community, and thus the economy, quite dependent on foreign importing, thus driving up manufacturing costs.
However, with the recent advent of manufacturing natural gas from shale, such as from the Marcellus Formation in the Appalachian Basin, in Corpus Christi, and other parts of America, many manufacturers are finding alternative and cheaper ways to procure fuel for production and decrease transportation costs as the use of LNG (liquefied natural gas) motor carriers increase. Currently, the procedure to extract this natural gas is known as Fracking.
With this decrease on foreign oil dependence, and the increase in supply of natural gas, Economists foresee a potential rebirth of American manufacturing including such basic industries as steel and plastics that had gone overseas and that many Americans thought they would never see again.
General Electric Co. chief executive Jeff Immelt is one captain of industry who is convinced that American manufacturing can rise again, thanks to the natural gas shale revolution.
According to Immelt, “The availability of shale in the United States and around the world has to be one of the biggest game-changers I’ve seen in my career.” It is not doubt that fuel is a one of the top manufacturing issues on all American manufacturing leadership’s minds.
“Made In America” Is the New Black (Again)
Finally, in this first part of pressing manufacturing issues in American Manufacturing, we close with the Rise of Demand of “Made In USA” as of late. “Made in America” was seen with great prominence around the mid-1990s when the FTC updated it’s labeling requirements, originally in stated in 1938, and then with more stringent “Made In USA” rules amended in 1996.
American manufacturing in certain areas is on the rise thanks to increasing Chinese wages and crowdfunding fueled new production startups. Although there was some weak manufacturing data out just as recent as May of 2013, the demand for American made goods seems to be increasing. At least that is the case when it comes to goods with the “Made in America” or “Made in USA” labels and this is especially true in the apparel industry. Indeed, many consumers like the quality perception boost associated with
lab
els serving as certificates that these goods were in fact made in America. Strangely, American made items are also growing in popularity because our production costs are declining while Chinese labor is actually seeing wage increases and surprisingly in some cases U.S. shop owners couldn’t afford to go with the Chinese manufactured options.
We highly suggest you follow the Alliance for American Manufacturing on Twitter for information and news on the “Made In America” or “Made in USA” movement.
Make sure you read tomorrow as we cover the rest of our top manufacturing issues in American Manufacturing. What other trends would you add? Let us know your thoughts on these 4 trends as stated above in the comments below!
CERASIS Inc.
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5 Keys to American-Made Holiday Shopping
in UncategorizedThe race to find holiday presents is underway, and there’s both good news and bad news for the shoppers out there.
But here’s the good news: Getting to the top of the gift-giving podium is as easy as spelling U.S.A.
When those three letters follow “Made in,” they instantly elevate your gift to the status of conversation piece. A simple shirt is transformed into a symbol of resilience. A simple toy becomes a statement about safe products. And a simple “thank you” becomes a conversation about American jobs and helping to put food on your fellow citizen’s table.
But wait, you thought. Buying American ignores costs and the realities of a globalized economy. We don’t make anything anymore.
Not so fast.
While it’s hard to argue that American consumers face a shortage of Chinese imports, it isn’t hard to argue that we face a shortage of jobs. So why not support more of them by purchasing from companies that make products here?
Doing so is easier than it seems. These days, shoppers have more Made in America options than they’ve had in years.
Toys? America has got you covered. Kitchenware? Lots of choices. Clothing? You bet. Electronics? Yes, we make those too.
From athletic footwear to flatscreen TVs, there are companies manufacturing in America today. And while you may expect to pay a premium for American-made quality, you’d be surprised at how easily those on tight budgets can find gifts at competitive prices.
So here’s a personal challenge to consider this season: Give just one more Made in America gift than you had planned.
Here are five tips to help you achieve (and surpass) that goal.
1. Web searches are your friend. Typing in key phrases like “Made in America” or “Made in USA” along with the gift you are searching for can narrow the field for you. Plus, many online stores like REI and Nordstrom let you search by “made in America” too.
2. Consider a curated list as your starting point. There are plenty to choose from. And with even more out there catering to crowds from union workers and do-it-yourselfers to hipsters and fashionistas, odds are you’ll find one to your liking.
3. Shop smartly at big box stores. Look in sections where you’re more likely to have success than those where you aren’t. For example: Plastic and rubber housewares, appliances, and perishables are better bets than buys in electronics and footwear.
4. Don’t discount the big brands. Some of them have a number of American-made options. New Balance, Whirlpool, KitchenAid, American Apparel, The Container Store,Brooks Brothers, and Nanette Lepore are just a few across a range of price points and product categories.
5. Go local. If the bigger names don’t appeal to you, consider purchasing your gift from a local artisan. Craft beer, artwork, food, jewelry, and wood toys are among the scores of options.
Bonus tip: Don’t drive yourself crazy. Trying to buy exclusively Made in America gifts is virtually impossible. Just think about doing a little better this year than you may have done in the past. Start with just one more gift.
And lastly: We’d be remiss if we didn’t remind you that giving American-made gifts can do something that Congress hasn’t been able to do for a few years: Help bring manufacturing jobs back to the States. America lost roughly a third of its middle-income factory jobs in the 2000s; and only about one in 11 of them have been added back since the end of the Great Recession.
But if each of us purchased one additional American-made gift this year, that alone would support somewhere in the neighborhood of 100,000 to 200,000 new jobs. We’d be able to tell Congress: If we can do it, you can pass policies to support American manufacturing too.
Made in America gifts that give more smiles, more jobs, and richer conversations. That’s how we’ll be giving this holiday season. How about you?
Scott Paul, President, Alliance for American Manufacturing
Alex Bogusky, Creative Advisor, Made Movement, formerly co-chairman of Crispin Porter + Bogusky
MADE IN THE USA… OR IS IT? INFOGRAPHIC
in UncategorizedManufacturing Jobs Loss To Stop, Says Study
in UncategorizedThe net loss of manufacturing jobs from the U.S. to China may have finally come to an end, according to a study by strategy and operations consultancy The Hackett Group. And because of changing conditions in the U.S. and Chinese labor markets, the net shift of jobs may move back to domestic facilities.
The reason manufacturing jobs moved to China from the U.S. in the first place was because of money. It simply cost less to make products there than here. Even though shipping goods back thousands of miles was expensive and there were the accompanying expenses of carrying the two months of inventory that would take 60 days or more to make the journey, lower costs of labor and materials more than made up the additional expenses.
The so-called “total landed costs” that take into account every expense occurred was lower for Chinese-manufactured goods. According to Hackett chief research officer Michel Janssen, products from China were 35 percent cheaper in 2005 than the American equivalent.
Times have changed. Because of domestic unrest and unfavorable publicity like the focus on labor conditions in Apple’s outsourced factories, salaries have risen in China. Rising oil prices have contributed to more expensive transportation costs. Some manufacturers have begun to bring jobs back to the U.S.
“For a long time we’ve been losing jobs,” Janssen says. “Now we’re reaching a point I call net zero.” That is, the number of manufacturing jobs returning has finally balanced the ones leaving.
A tipping point
“The expectations are that by 2013, [the difference in landed costs] will be 16 percent,” Janssen says. Coincidentally, 16 percent is the threshold at which U.S. companies say that they would consider moving manufacturing jobs out of China, according to a Hackett survey of major corporations. The chances are that within a few years, the U.S. could see a net gain in manufacturing jobs.
However, there are significant downsides to the news. One is that jobs won’t return in the same volume. U.S. manufacturers have continued to use technology to make factories more efficient and the jobs that return will likely be to highly automated facilities that don’t need as many people as they once might have.
Also, not all the jobs that are “reshored” will return. Many that depend on lower cost wages and other manufacturing expenses will move to other areas in Asia like Vietnam, South Asia locations like India, and even South America. Also, the move to the U.S. depends on the “implicit deflation in wages here,” Jenssen says. So even if jobs that were once well-paying with good benefits return, they may offer significantly less to workers.
Services still hurting
The change in manufacturing jobs has had no impact on the move of service jobs in accounting, IT, human resources, customer service, technical support, and similar areas. According to another Hackett study, the net number of general and administrative overhead service jobs moving out of the U.S. this year will likely hit 285,000, continuing a long-standing trend.
But by 2016, the number of service jobs that companies could outsource will have dropped to a million. “We’re not going to run out of labor arbitrage opportunities. We just run out of low cost jobs to move,” Jenssen says.
Family & Friends Event at Montauk Tackle Co. American Built Performance Apparel
in NewsAccording to The National Retail Federation, overall online retail sales this holiday season are expected to amount to $82 billion, which would be up as much as 15% from November and December in 2012. The National Retail Federation also estimates 140 million people will shop in stores or online during the four-day Thanksgiving Day weekend. The trade organization also forecasts that sales in November and December will increase 3.9% to $602.1 billion.
Utilizing social media to get the word out will be the course of action for MTC. Twitter, Facebook, Pintrest and specially selected bloggers are just a few of the outlets. “What better way to share with family and friends then through social media, no special code to enter into our website, just 20% off across the board for this great weekend. We just wanted to make it as simple as possible to enjoy the savings,” says Ron Cesark, President of Montauk Tackle Co.
Another recent National Retail Federation survey asked people whether they plan to shop either in stores or online Thanksgiving Day. Of those who plan to shop over the whole weekend — Thursday, Friday, Saturday and Sunday — almost a fourth (23.5% or 33 million shoppers) said they’d shop on Thanksgiving.
About:
Montauk Tackle Company, Inc. is a technical performance apparel company that embodies the active outdoor coastal-living lifestyle. A privately held, family owned company founded in 2007 on Long Island, New York that is committed to resourcing and manufacturing in the U.S.A.
Montauk Tackle Company, Inc. is an active member of The Made in America Movement. Check out why it pays to be a MAM member. Member Benefits
Manufacturing’s Role in The U.S. Economy
in UncategorizedI don’t know either, but I do know that accounting for the current value of manufacturing in terms of past offshoring and recent re-shoring is a difficult, if not impossible, task. Regardless, that’s exactly what many discussions on the state manufacturing in the U.S. are based.
A more dependable estimate of the value of manufacturing to the U.S. economy is data from the U.S. Census Bureau, which recently released some new data from its 2011 County Business Patterns and Survey of Manufacturers projects.
The average annual salary of a U.S. manufacturing worker was $52,300 in 2012—27 percent higher than the average U.S. worker’s salary in 2011 (which was $41,211 in 2011, according to the Social Security Administration).
Considering the importance of exports to the economy, it’s notable that manufacturing still accounts for more than half of our export dollars—6 in 10 of U.S. export dollars were generated by manufacturing in 2011.
Of course, exporting is only half the economic equation, with consumption being the other half. According to the 2011 Annual Survey of Manufacturers, U.S. manufacturers spent $3.2 trillion on materials in addition to spending $147 billion on capital expenditures.
Sectors of the manufacturing industry that are performing the best, in terms of shipment value, are: petroleum and coal products ($837 billion), chemical ($777 billion), food ($710 billion), and transportation equipment ($690 billion). From there, the size of the industry sectors, in terms of shipments, are considerably smaller, with the next category—machinery—clocking in with $366 billion in shipments, about half of the shipment value total of the equipment sector.
In terms of energy management, data from the 2011 Annual Survey of Manufacturers shows that manufacturers—the largest industrial consumers of energy—are getting more savvy about generating power and making money from it. According to the survey, manufacturers generated 119 billion kilowatt hours of energy and sold nearly 35 billion kilowatt hours of energy.
All in all, it seems like the increasing focus put on U.S. manufacturing over the past several years by both entrepreneurs and government looks to be paying off.
David Greenfield has been covering industrial technologies, ranging from software and hardware to embedded systems, for more than 20 years. His principal areas of coverage for Automation World focus on technologies deployed for factory and process automation. Contact David at dgreenfield@automationworld.com or follow him on Twitter @DJGreenfield.
Effort Afoot To Make Blue Laces a Symbol of Support For U.S. Goods
in UncategorizedAccording to the press materials sent our way — including a video of a fellow pulling a 13,000-pound truck with a pair — these aren’t going to be your run-of-the-mill laces.
“[T]o do it, we’ve partnered with one of the last shoelace manufacturers left in America,” Bronstein says in the announcement. “We challenged them to develop the very best product they’ve ever created. They came back with a lace unlike any we’d seen — a braided, high density, waxed canvas piece tipped in aluminum.
“This is about more than re-setting expectations and supporting an American factory on the ropes,” the announcement continues. “It’s about giving American manufacturing its own yellow ribbon: a wearable way to show support for the war they’re waging daily. A symbol that retailers can see that lets them know that if they start stocking the right domestically produced product, their customers will care. It’s time to support each other again. It’s time to try harder again.”
According to the Bluelace Project page at Kickstarter.com, the funds from each $5 pledge will be allocated as follows:
“$1 goes to Processing fees (10% of all money received is paid directly to New York City-based Kickstarter and Amazon for processing the transaction)
$2 goes directly to our shoelace factory in Portsmouth, Ohio, for manufacturing the laces using American materials and shipping them to our warehouse.
$1 covers shipping, this includes the stamps purchased from USPS and the envelope bought in bulk from our Texas-based manufacturer.
$1 is paid to our Henderson, Nevada, warehouse for packing each individual order (likely a set of BLUELACES plus whatever additional goodies we decide to throw in the pouch).”
We must get 100 emails a month pitching a new made-in-the-U.S. product, project, Web clearinghouse or the like – and even more that tout the latest in crowd-funded fashion. But what really appeals to us about this (apart from the fact that it combines both) is the sheer simplicity and straightforwardness of the item and the symbolism behind it.
Yes, a $5 pledge gets you a pair of high-quality, eye-catching laces. It also sends a message that you’ve, in one small way, very visibly voted with your feet.
And if these blue shoelaces manage to lift the enthusiasm for buying American-manufactured goods — even the tiniest bit? Well, we’d consider that a far more impressive feat of strength than pulling a 13,000-pound truck.
As of this writing it appears that Bornstein might be well on his way to tying this one up in a big shoelace-appropriate bow — the first four hours of the campaign generated 1,120 backers pledging $16,387 toward the $25,000 goal.
At this rate, we won’t be surprised if The Bluelace Project is fully funded in time to tie one on for happy hour.
Walmart Collecting Food For Employees Who Can't Afford Thanksgiving Dinner.
in Uncategorized“Please Donate Food Items Here, so Associates in Need Can Enjoy Thanksgiving Dinner,” read signs affixed to the tablecloths.
The food drive tables are tucked away in an employees-only area. They are another element in the backdrop of the public debate about salaries for cashiers, stock clerks and other low-wage positions at Walmart, as workers in Cincinnati and Dayton are scheduled to go on strike Monday.
Is the food drive proof the retailer pays so little that many employees can’t afford Thanksgiving dinner?
Norma Mills of Canton, who lives near the store, saw the photo circulating showing the food drive bins, and felt both “outrage” and “anger.”
“Then I went through the emotion of compassion for the employees, working for the largest food chain in America, making low wages, and who can’t afford to provide their families with a good Thanksgiving holiday,” said Mills, an organizer with Stand Up for Ohio, which is active in foreclosure issues in Canton. “That Walmart would have the audacity to ask low-wage workers to donate food to other low-wage workers — to me, it is a moral outrage.”
Kory Lundberg, a Walmart spokesman, said the food drive is proof that employees care about each other.
“It is for associates who have had some hardships come up,” he said. “Maybe their spouse lost a job.
“This is part of the company’s culture to rally around associates and take care of them when they face extreme hardships,” he said.
Lundberg said holding the food drive at the Canton Walmart was decided at the store level. However, the effort could be considered in line with what happens company-wide. The Associates in Critical Need Trust is funded by Walmart employee contributions that can be given through payroll deduction. He said employees can receive grants up to $1,500 to address hardships they may encounter, including homelessness, serious medical illnesses and major repairs to primary vehicles. Since 2001, grants totaling $80 million have been made.
But an employee at the Canton store wasn’t feeling that Walmart was looking out for her when she went to her locker more than two weeks ago and discovered the food drive containers. To her, the gesture was proof the company acknowledged many of its employees were struggling, but also proof it was not willing to substantively address their plight.
The employee said she didn’t want to use her name for fear of being fired. In a dozen years working at the company, she had never seen a food drive for employees, which she described as “demoralizing” and “kind of depressing”. The employee took photos of the bins, and sent them to the Organization United for Respect at Walmart, or OUR Walmart, the group of associates holding the strikes in Cincinnati and Dayton.
Vanessa Ferreira, an OUR Walmart organizer, said she “flipped out” when she first saw the photos taken by the Canton worker.
“Why would a company do that?” she said. “The company needs to stand up and give them their 40 hours and a living wage, so they don’t have to worry about whether they can afford Thanksgiving.”
The strikes against Walmart, which have been staged in the last several weeks across the country, including at stores in California, Florida and Illinois, are focusing on three issues: ensuring that no associate makes less than $25,000 a year, offering employees more full-time work and “ending illegal retaliation” against employees who speak out against pay and working conditions.
The first strike occurred last Black Friday at Walmart stores throughout the country. Though most associates remained on the job, many credit the event with being the public launch of the low-wage workers’ movement. Efforts to raise the minimum wage would follow, including a bill pending before Congress to raise the federal hourly minimum wage from $7.25 to $10.10. (The minimum wage in Ohio is $7.85.) In the time since, fast-food workers also have staged strikes, demanding the minimum wage be raised.
OUR Walmart won’t say what is planned for this Black Friday, but the group has a news conference scheduled Monday afternoon in Washington, D.C. AFL-CIO President Richard Trumka and Joseph Hansen, international president of the United Food and Commercial Workers union, are scheduled to announce organized labor’s commitment to Black Friday efforts.
Lundberg said taken in this context, OUR Walmart had incentive to first misinterpret and then blow out of proportion the food drive at the Canton store as fodder for the campaign.
Reed said it was “ignorant” to question efforts to help people in need or blame Walmart for the economic realities of the labor force nationally.
“You can’t find a decent job anywhere,” she said.
Scott Stringer, a Dayton associate who said he intends to go on strike, said Walmart bears blame because of its dominance. He makes $9.30 an hour after five years with the company.
“Walmart sets the precedent for everybody, so if they make changes, everyone would follow suit,” he said. “The economy and the United States, in general, would be a better place.”
A question of salaries
Lundberg said nationally that associates make $12.87 an hour. The company considers those working at least 34 hours to be full time. He said the average full-time employee works 37 to 38 hours a week. That comes to an annual salary of about $25,000.
OUR Walmart places the average salary at between $8 and $10 an hour, based on glassdoor.com and other websites that compile salaries, often without company participation. Based on that range,
th
e average associate’s salary is roughly between $15,000 and $20,000 a year.
For example, after about a dozen years on the job, the Canton employee who took the photos makes nearly $12 any hour. But the hourly rate is misleading, she said. Though officially a full-time worker, the associate said she only made about $17,000 last year because the company has had a common practice in recent years of cutting hours.
Lundberg said this isn’t true and that the company is committed to having full-time employees. For example, he said company-wide, 35,000 associates are scheduled to be promoted from part time to full time between September and January.
Ricki Hahn, a Dayton associate who intends to strike Monday, said poor working conditions — and not money — motivated her to speak out. She said supervisors consistently berating employees — often in public — is part of Walmart’s culture. So is failing to address unsafe working conditions, such as unsecured shelving in a stock room that could fall on employees, she said.
The company says it has good working conditions, in terms of safety and employee relations.
Hahn, who makes $11.70 an hour after 7½ years, describes her salary as “pretty good” since she knows it is hard for her to get credit for experience in her industry, and she would be back earning near minimum wage should she take a similar job at another retailer. Hahn said she is realistic about the salaries low-skilled workers should make. For example, she supports the federal bill to raise the minimum wage to $10.10, but believes the fast-food workers demand of $15 is too high.
While the Walmart strike isn’t just about wages, it always seems to come back to money. Hahn is constantly reminded of this during the work day.
“Personally, it is difficult for me to stock groceries that I can’t afford at the end of the day,” she said.
Symbols both in food drive and strike
While Walmart officials and many employees see the food drive bins as a symbol of generosity, others see it differently.
“That captures Walmart right there,” said Kate Bronfenbrenner, director of labor education research at Cornell University’s labor school. “Walmart is setting up bins because its employees don’t make enough to feed themselves and their families.”
Mills, the Canton community activist, said the issue of the food drive drew her in because for her it represented another case of corporations behaving irresponsibly and then leaving the less fortunate to “clean up the mess.” She said if employees can’t afford Thanksgiving, then Walmart should pay for turkey dinners “with all the fixings and all the sides.”
Mills successfully worked toward getting Canton to pass a law requiring banks and other financial institutions to put up bonds so the city wouldn’t be left paying to maintain the homes on which these institutions foreclosed. Many of these foreclosures were the result of subprime and predatory loans, she said.
“I call it the reverse Robin Hood effect,” she said.
Walmart sees the strikes as a symbol without substance. For example, during the highly publicized strikes in Los Angeles earlier this month, the company said no more than 20 associates participated, though there were about 275 demonstrators.
Bronfenbrenner said the company is misinterpreting the low numbers of workers on strike.
“There were many work places, that when the striking workers returned, many workers inside stood up and clapped,” she said.
Both Dayton strikers Hahn and Stringer say they have strong support, even if fellow workers won’t join them on the picket line.
“A lot of friends of mine at work want to go out on strike, but they fear that they won’t be able to support their families if something happens,” Hahn said.
That something could mean losing a job, said Ferreira, the OUR Walmart organizer. She said she got fired after participating in the 2012 Black Friday strikes. Ferreira was terminated some time after the strike on trumped up charges of staying on break too long, she said.
Lundberg said Walmart has a very strong anti-retaliation policy.
Hahn and Stringer see themselves at the beginning of a movement that they believe will mushroom.
“We’ll be speaking out for other areas, like Cleveland, that aren’t striking,” Hahn said. “Just because they aren’t striking Monday, doesn’t mean it can’t happen there soon.”
Chinese Labor Camp Inmate Tells of True Horror of Halloween 'SOS'
in UncategorizedSECRET LETTER FOUND INSIDE HALLOWEEN TOY
“I feel obligated to use them every year now because I feel they need to have some worth,” said Keith, 43, who lives here with her husband and their two young children. “I am sad for the people who have to endure torture to make these silly decorations.”
The decorations came in a $29 “Totally Ghoul” toy set that Keith purchased in a local Kmart store in 2011. When she opened the package before Halloween last year, a letter fell out.
In broken English mixed with Chinese, the author cried for help: “If you occasionally (sic) buy this product, please kindly resend this letter to the World Human Right Organization. Thousands people here… will thank and remember you forever.”
The letter went on to detail grueling hours, verbal and physical abuses as well as torture that inmates making the products had to endure — all in a place called Masanjia Labor Camp in China.
“It was surprising at first and I didn’t know if it was a hoax,” recalled Keith, a program manager at a company that runs a chain of thrift stores and donation centers. “Once I read the letter and researched on the Internet, I realized that this may be the real deal.
“I knew there are labor camps in China, but this slammed me in the face. I had no idea if this person was still alive or dead or in the camp — it’s extraordinary that it was able to come all the way from China.”
Keith heeded the writer’s call by reaching out to human rights groups but received no response. She then posted the letter on Facebook, which prompted the local Oregonian newspaper to run a front-page article.
As word of Keith’s unusual Halloween discovery spread, her story turned into international news, throwing a spotlight on one of China’s most notorious labor camps — and the controversial system behind them.
Strange discovery
Then one morning recently, some 6,000 miles away from Damascus, a bespectacled middle-aged Chinese man walked into the CNN office in Beijing to talk to us about this strange discovery half a world away. His voice was soft and calm but from time to time it would betray a hint of both agony and force.
“I saw the packaging and figured the products were bound for some English-speaking countries,” he said. “I knew about Christmas but we were making skulls and the like — I really didn’t know much about Halloween.
After months of searching, through a trusted source and with some good luck, CNN found the man who says he wrote the letter that Keith found in her Halloween decorations. Released from the labor camp but afraid to be sent back, he agreed to his first television interview on the condition that CNN concealed his identity.
“Mr. Zhang” — as he would be called — is a follower of the Falun Gong spiritual movement, branded by the Chinese government as an evil cult and outlawed since 1999. He claims he was detained by police several months before the 2008 Summer Olympics in Beijing and sentenced to two and a half years in the Masanjia labor camp in northeastern China.
Zhang recounted the systematic use of beatings, sleep deprivation and torture, especially targeting those like him who refused to repent. Some gruesome details are too specific to him to be reported.
“Making products turned out to be an escape from the horrible violence,” he said. “We thought we could protect ourselves, and avoid verbal and physical assaults as long as we worked and did the job well.”
Moving forward with his plan to expose the horror in the camp, he secretly tore off pages from exercise books meant for political indoctrination sessions as inmates were barred from having paper. He also befriended a minor criminal from his hometown — a monitor for the guards — who managed to get him another banned item: a ball pen refill.
“I hid it in a hollow space in the bed stand — and only got time to write late at night when everyone else had fallen asleep,” he recalled. “The lights were always on in the camp and there was a man on duty in every room to keep an eye on us.”
Demonstrating his awkward position in bed, he continued: “I lay on my side with my face toward the wall so he could only see my back. I placed the paper on my pillow and wrote on it slowly.”
A college graduate, he said it took him two or three days to finish a single letter through this risky and painstaking process. “I tried to fill as much space as possible on each sheet,” he said. “Every letter was slightly different because I had to improvise — I remember writing SOS in some but not in others.
“Writing in English was very hard for me. I had studied the language but had never practiced speaking or writing much. That’s why I included some Chinese words to make sure the message would not be misunderstood because of my English mistakes.”
He slipped 20 letters into Halloween decoration packaging in 2008 and at least one, against all odds, got out and made headlines four years later.
In late October, the autumn colors were fading fast in Masanjia Township as temperatures plunged to barely above freezing overnight. Driving towards town, the landscape was a mixture of barren farmland and mothballed factories with banners advertising cheap rent.
The town itself sits outside Shenyang, the provincial capital of Liaoning and an industrial base of eight million residents. If not for the labor camp infamy, it would be just another backwater in China’s northeastern rust belt.
A national emblem and two signs adorned an unguarded entrance in the center of town. One displayed “Liaoning Province Masanjia Labor” with the final word of “Camp” missing; the other read “Liaoning Province Ideological Education School.”
Inside the complex, which seemed to be closed — though officials would not confirm this — fields covered with haystacks and dried corn separated three clusters of low-rise buildings. Administrative offices were painted white, female inmates’ quarters mostly red and male’s largely beige. High blue concrete walls or green fences glinted with barbwire surrounding the inmate areas, as guard towers loomed above each corner.
As the van carrying her and the CNN crew stopped near the women’s quarters, powerful memories rushed back to this 50-year-old farmer from a nearby village.
“I was confined in that building — Room 209,” she said while standing outside the fence. “We had the 4:15 a.m. wake-up call, worked from 6 a.m. to noon, got a 30-minute lunch and bathroom break, and resumed working until 5:30 p.m. Sometimes we had to stay up until midnight if there was too much work — and if you couldn’t finish your work, you would be punished.”
Liu only dared to return here after hearing that authorities had released the last group of inmates in mid-September — an apparent step toward shutting the facility down.
She had landed in Masanjia twice for petitioning against local officials over what she calls illegal land grabs. In total, she spent two and a half years in the labor camp. Her first stint overlapped with Zhang’s, but the two only met after both were released. Unlike Zhang, Liu didn’t see work as an escape. Remembering making down jackets bound for Italy and shirts sold to South Korea, she still shivers at the heavy workload that almost ruined her health.
“I had to do everything from matching fabrics to sorting materials and cutting loose threads,” she said. “Every day, I had to repeat seven work steps — for about 2,400 steps in total.”
Suffering from high blood pressure and malnutrition, Liu said she once fainted on the job but was denied medical care. For her defiant attitude, she said guards also ordered fellow inmates to beat her twice — their assaults with plastic stools and basins so vicious that she lost consciousness. “But I still had to work after I regained consciousness,” she added. “This place was Hell on Earth.”
Horror exposed
Last April, Masanjia’s fear-striking reputation was cemented when Lens, a Chinese magazine, published a lengthy article about the horrors inside its walls. Based on interviews with a dozen former female inmates including Liu, the story — titled “Leaving Masanjia” — detailed appalling working and living environments as well as frequent use of torture in the camp.
The Chinese journalists also spoke to two former officials at the camp who said Masanjia housed more than 5,000 inmates as free laborers at its peak and created annual revenues of nearly 100 million yuan ($16 million) — including those generated from exports.
The story mentioned the discovery of an accusatory letter about Masanjia in a Halloween decoration package in the United States — and that the news caused a big stir in the labor camp. When asked, one official confirmed the letter indeed came from the Masanjia men’s camp.
The article’s publication surprised many observers, as domestic Chinese media — all state-run — had long shunned the sensitive subject.
Less than two weeks after the issue hit newsstands, the official state news agency, Xinhua, ran a response from the local autho
rit
ies. Calling the article “seriously inaccurate,” provincial officials in Liaoning said their thorough investigation at Masanjia turned up no evidence of any torture or mistreatment of the interviewed inmates during their confinement.
Lens magazine suspended publication for several months after its Masanjia issue.
Despite CNN’s repeated efforts, officials with Liaoning’s police department and press office declined to comment for this story.
By all accounts, Masanjia is but one of hundreds of labor camps in China borne under the laojiao — or “re-education through labor” — scheme.
Set up in 1957, the system allows the police to detain petty offenders — such as thieves, prostitutes and drug addicts — in labor camps for up to four years without a trial. China’s judicial process itself is already controlled by the ruling Communists in a one-party regime. In a 2009 report to a United Nations human rights forum, the Chinese government acknowledged 320 such facilities nationwide holding 190,000 people. Other estimates have put the number of inmates much higher.
Critics have long accused of the authorities of misusing the camps to silence so-called trouble makers, including political dissidents, rights activists and Falun Gong members.
“The continued existence of laojiao signifies China remains a police state,” said Pu Zhiqiang, a prominent Beijing-based lawyer known for defending government critics in court and a vocal opponent of the labor camp system. “It’s against China’s own constitution and laws, as well as international conventions it has signed.
Two of Pu’s cases last year generated a massive backlash against laojiao, forcing the government to re-examine the thorny issue. In one case, a mother was sentenced to one and a half years in a labor camp for “disrupting social order” after she repeatedly petitioned officials to execute men convicted of raping her 11-year-old daughter. In another case, a young village official was sent to a labor camp for two years for retweeting posts deemed seditious.
Since the change of top leadership a year ago and despite mixed signals, the government may finally be ready to scrap the controversial system.
Li Keqiang, the new premier, said in his first press conference as head of the government that officials were “working intensively to formulate a plan” to reform the laojiao system and it may be announced before the year’s end. A senior Chinese diplomat repeated Li’s statement recently when addressing a U.N.-organized human rights forum.
While some activists have expressed concerns over the official term of “reform” instead of “abolition,” Pu, the lawyer, feels the strong tide of public opinions against the laojiao system has forced the government’s hands.
Already, provinces around China — including Liaoning — seem to be preparing for the inevitable. State media has cited examples of officials stopping accepting new inmates, changing camp names to drug rehabilitation centers and reducing staff on site.
And an empty Masanjia seems to be the ultimate testimony there is no going back.
Back in Oregon, Julie Keith is still awaiting the next move from her government. She contacted U.S. customs officials after finding the letter, as federal law prohibits the import of goods made by forced labor. She said officials admitted there was little they could do other than adding her report to their file. She hasn’t heard from them since.
Contacted by CNN, a spokeswoman with U.S. Immigration and Customs Enforcement (ICE) declined to confirm the existence or status of an investigation.
“These allegations are very serious and are an investigative priority for ICE,” she said. “These activities not only negatively impact the competitiveness of American businesses, but put vulnerable workers at risk.”
Supplying the West
Sears, the company that owns Kmart, also responded when asked how products in a labor camp in China ended up on its store shelves. “We found no evidence that production was subcontracted to a labor camp during our investigation,” it said, but added it no longer sources from this company.
Keith believes Sears “must know” but “would rather this be swept under the rug.”
Her skepticism is shared by human rights activists who have long called for stricter supervision of supply chains by multinational corporations. “A lot of these camps are run like businesses and, if you look online, there are a lot of them advertising,” said Maya Wang, a Hong Kong-based researcher for Human Rights Watch. “One would question how they get in touch with Western companies and whether or not Western companies have done due diligence when they procure services.”
For consumers, though, Wang says the only sure bet to avoid forced labor products from China is to push for legislation in their own countries and ensure strict implantation by their governments.
Even if China abolishes the labor camp system, experts like Wang and Pu point out that convicted criminals often work under similar labor conditions in prisons.
Freed from Masanjia but still haunted by the nightmare, Zhang has lived quietly in Beijing. When his long-forgotten letter was discovered by Keith and made news last year, he was as surprised as everyone else. He sent a new letter to Keith through a friend, thanking her profusely for her “righteous action that helped people in desperation achieve a good ending,” while reminding her that “China is like a big labor camp” under the Communist Party’s rule.
“It is quite ironic that it was a bloody graveyard kit that I purchased — knowing that the people who made these kits were desperate and bloody themselves,” Keith reflected.
“Now I check the labels and try not to buy things I don’t necessarily need, especially if it is made in China,” she added.
More Jobs Announced From Wal-Mart Onshoring Effort
in UncategorizedBentonville-based Wal-Mart sponsored the “U.S. Manufacturing Summit” in Orlando, Fla., that was held Aug. 22-23. The event connected economic development officials from 34 states with about 500 Wal-Mart suppliers and retail vendors.
Arkansas Gov. Mike Beebe was one of eight state governors to attend. The effort has already produced one success for Arkansas. Redman & Associates announced Oct. 7 a $6.5 million investment to relocate its ride-on toy manufacturing business from Shanghai to Northwest Arkansas over the next three years.
The announcement Thursday was held at the SelectUSA 2013 Investment Summit with Walmart U.S. President and CEO Bill Simon joining U.S. Department of Commerce Secretary Penny Pritzker to discuss the manufacturing moves to the U.S.
More than 1,200 attendees from nearly 60 countries around the world attended the SelectUSA event held in Washington, D.C., and coordinated by the U.S. Department of Commerce.
According to a statement from Wal-Mart, Elan-Polo, Louis Hornick & Company and EveryWare Global will produce footwear, curtains and glassware, respectively. The three suppliers will create a combined 385 jobs with the new manufacturing operations.
“Today’s announcement is a great example of the progress that’s being made, and it highlights opportunities that exist for manufacturers to invest in the USA by re-shoring or expanding their manufacturing in America,” Simon said in the statement. “Companies, government officials and industry leaders are working together to increase manufacturing, and these efforts are helping more Americans get into good-paying jobs and more businesses reinvest in the U.S. economy.”
The statement provided the following details about the three companies.
Wal-Mart said in the statement that as a result of their onshoring effort “manufacturers have committed to create more than 1,600 jobs and invest more than $100 million in industries that include socks, televisions, light bulbs and hardware. Factoring in today’s announcement, more than 600 of those job commitments have been announced since Walmart’s U.S. Manufacturing Summit.”
In addition to the Redman move to Rogers, the new operations include:
It will take many more announcements to boost the U.S. and Arkansas manufacturing sectors.
Historically, U.S. manufacturing sector employment has ranged between 19 million and 17 million. It reached a high of 19.553 million jobs in June 1979. Sector employment has been stuck below 12 million since May 2009. Prior to May 2009, the last time sector employment was below 12 million was May 1941. The sector employed an estimated 11.963 million as of September, up slightly over the 11.925 million in September 2012.
The U.S. Bureau of Labor Statistics estimated there were 154,700 manufacturing jobs in Arkansas during August 2013. Employment in the sector is down 24.2% compared to August 2003, and is down more than 37% compared to the sector high of 247,300 set in February 1995.
Toy Firm To Invest $6.5 Million, Add 74 Jobs in Rogers
in UncategorizedMel Redman, a former Wal-Mart executive and Redman CEO, told a room full of economic leaders that his firm had been looking at on-shoring its small manufacturing center as the economics are now favoring “Made in the USA.”
“This would not have happened if Wal-Mart had not made its $50 billion commitment to source American-made products over the next 10 years. That gave me the guts to step out and do it,” Redman said during Monday’s press conference.
Wal-Mart officials announced on Jan. 15, 2013, a pledge to purchase in the next 10 years an additional $50 billion in U.S.-made goods. Company officials have said they hope to boost U.S. manufacturing – often referred to as “onshoring” – by purchasing more sporting goods, apparel basics, storage products, paper products, textiles, furniture and higher-end appliances.
Beebe was one of eight state governors to attend the “U.S. Manufacturing Summit” in Orlando, Fla., that was held Aug. 22-23. The event connected economic development officials from 36 states with about 600 Wal-Mart suppliers and retail vendors.
Redman said he attended the recent supplier/manufacturing conference held in Orlando by Wal-Mart.
“We met with the state economic team about shared our plans and they took off like a freight train after that,” Redman said.
This is the first score for Arkansas since Wal-Mart’s manufacturing conference which brought together suppliers and state economic teams to discuss bringing manufacturing jobs back to the U.S.
Redman said he operates a sales office in Bentonville that employs 16 people. But moving the manufacturing here will create 17 jobs the first year, ramping up to 74 by the time the entire operation comes online in Rogers.
A study by the University of Arkansas estimates the $18.55 per hour average wage created from this business will pump $3 million back into the local economy once it’s fully operational. The UA study found that every new manufacturing job created will support four other jobs that provide services to the toy maker.
“We buy a lot of cardboard boxes and print lots of labels. Local companies here will get that business,” Redman said.
He said when the Rogers plant is fully operational and shipping from Northwest Arkansas instead of Long Beach, Calif., his firm will save 2.2 million inland miles and slash $7 million in ocean freight expenses, by far its largest annual expense. It will also cut seven days out of the supply chain, making for a more efficient overall operation.
Gov. Beebe said there is not a better story than seeing a local entrepreneur who could have retired long ago but instead invests in creating new jobs.
“This is just the tip of the iceberg. We are going to see other companies follow this lead because people do want to buy American-made products if the price and quality are comparable,” Beebe said.
Beebe also credited Wal-Mart for stepping out to help facilitate suppliers and economic teams to make success stories like this happen.
“I have said for a long time that a country can’t be great unless it makes things, we are seeing these jobs come back because consumers want to buy manufactured goods made in America,” Beebe said.
“Wal-Mart’s commitment to restoring U.S. manufacturing jobs and Redman & Associates’ decision to bring these jobs to the U.S. allow more Americans to do just that. With rising business costs overseas, Arkansas has the ideal location and workforce for companies looking to manufacture and distribute products throughout the U.S. and the world,” he said.
Rogers Mayor Greg Hines said the new facility will be located at 1300 N. Dixieland Road in an existing 275,000 square-foot building.
“Mel Redman told me after touring the building that he could not have built one more suitable for his manufacturing needs,” Hines said.
Redman will produce 6-volt battery powered ride on toys and believes they can source all of the raw products in the U.S. The battery itself is the most challenging. Redman will relocate its plastic molding business to Rogers, which makes the main body of these ride-on toys.
The toys made locally will feature characters from Disney and Marvel franchises including Disney Princess, Classics, Disney•Pixar and Spider-Man. Production should begin in early 2014. Redman is licensed by Marvel Characters B.V., and Redman produces Disney character ride-on toys for Wal-Mart under Wal-Mart’s license with Disney.
Simon said the response he and other Walmart officials are hearing from their supplier community about this initiative has been overwhelmingly positive.
“It is making economic sense. We continue to hear about smaller suppliers adding a few U.S. jobs here and there, but this is the first of we hope are several announcements for manufacturing onshoring,” Simon said.
He said this region like many others could become clusters for certain like types of manufacturing. For instance Redman requires plastic molding, which could open the door for others in that business. Or, when a textile company that makes socks comes back onshore, other garment companies could also cluster there because of shared sourcing power.
Grant Tennille, executive director for the Arkansas Economic Development Commission, said the state did give Redman a few incentives to move their manufacturing operation from Shanghai to the Natural State. Those incentives included $2 million that goes toward building and equipment costs for Redman, and the Arkansas Advantage 1% state tax credit on wages paid for five years. In addition, Redman will also get a sales tax rebate on manufacturing equipment purchases relating to its startup.
Tennille said the tax credits occur retroactively. Redman said the incentive package helped to seal the deal.
Tennille said there are plenty of other companies like Redman that have the relationship with Wal-Mart but have been outsourcing their manufacturing arm. Those are some of the companies the state is targeting for onshore efforts.
Raymond Burns CEO of Rogers Lowell Chamber of Commerce, said Monday’s announcement is symbolic of what is happening across the country as manufacturers across many segments are finding economic incentives to make their products in the U.S.
“We hope to see more of it here, that’s for sure,” Burns said.
Redman & Associates is a family-owned business founded in 1995. The company started as a consulting firm, and now has a diversified portfolio that includes production through all stages of product design, production, logistics, store planning, and into the hands of the consumer. The company produces Monster TRAX ride-on toy vehicles, Zumu three-in-one bike trailer/jogg
er/
strollers and a variety of six-volt ride on toys licensed through Disney.
Industry Expert: Economy Turning A Corner
in UncategorizedKorzenik, a 27-year industry veteran and a frequent guest on CNBC’s “Closing Bell” program, said the economic downturn of 2008-09 might not have been “your grandfather’s recession, but it was your great- great-grandfather’s recession”
“The kind of financial disaster that we weathered in 2008 and 2009 used to occur in the United States every 10 or 12 years,” he said “But it primarily occurred in the 19th century and parts of the 20th century. Economists called it a financial panic. What was abnormal in ’08 and ’09 was that we had a 19th century recession.”
That said, Korzenik thinks we are turning a corner.
“There have been some structural changes in the U.S. workforce,” he said.
If you lose your job in a recession it takes you longer to get back to work, Korzenik said. Usually it takes 15 to 20 weeks on average for people to get back in the workforce but in this recession, people stayed out of work for 40 weeks or more.
“We’re starting now to get some resolution from this because we’re through the pipeline of people exhausting their unemployment benefits and making tough choices to return into the workforce,” Korzenik said. “This is the essence of the journey to normal.”
Housing and construction market is also on a comeback and the acceleration is continuing, Korzenik said.
Children of baby boomers are moving out of their parent’s homes. It was delayed during 2008-09 downturn. Korzenik called it “getting junior out of the basement.”
Some of those “juniors” may only be renting but others are buying homes. Korzenik also said there was not a lot of hiring of young people during the recession, but that has changed. Their unemployment rate was above the national average but now it’s below.
“This group has seen enormous gains,” he said.
Korzenik said another driver of economic growth is the reshoring of manufacturing in the United States. The days of sending jobs overseas is changing and makers of heavier items are moving back to the U.S. Korzenik said Whirlpool has opened its first manufacturing plant in the U.S. in 30 years.
“It’s important for the creation of new jobs,” he said. “Manufacturing jobs may not pay what they paid at their peak, but they still pay more than service sector jobs.”
Korzenik said manufacturing jobs have what Congress calls “a high multiplier effect,” which means they tend to create other jobs in the economy.
Additionally, there has been a profound energy revolution to extent that the U.S. has overtaken Russia as the largest energy producer of the world.
“Ten years ago this was unthinkable,” Korzenik said. “It’s one of the drivers of manufacturing because energy in the United States is cheaper.
Korzenik also talked about the movement to natural gas in vehicles – something that’s becoming widespread with trucking fleets across the country.
Despite the apparent journey to normal, Korzenik was reminded of the proverb “a man plans and God laughs” – which means things can go wrong. Those things include inflation risks, currency debasement and inflation.
Wal-Mart In Projects To Make Shoes, Curtains, Jars in U.S.
in American Made“It takes a lot of entrepreneurship; it takes a lot of innovation; it takes a lot of conviction to make that decision to take that step to invest capitol here,” said Simon.
Elan-Polo Inc. will start production of injection-molded footwear in March at a factory in Hazelhurst, Georgia. The company previously made the shoes overseas.
At the press conference Elan-Polo CEO Joe Russell cited “support and encouragement” from Wal-Mart, which it has been supplying with goods for 35 years.
EveryWare Global Inc. will produce canning jars for Wal-Mart at its Monaca, Pennsylvania, facility, establishing a new made in the U.S. product line.
And Louis Hornick and Co., a Wal-Mart supplier for four decades, will establish a new facility in Allendale County, South Carolina, to make window coverings and home textiles.
“Our next goal is to encourage other businesses just like these to step up to the plate,” Pritzker said.
Thursday’s announcement was part of Wal-Mart’s pledge, announced in January to buy an additional $50 billion in U.S.-made products over the next decade.
In August, the company held a “manufacturing summit” attended by more than 500 suppliers from 34 states clamoring to get a slice of the action.
Reuters reported in September that in advance of Wal-Mart’s patriotic pledge, many of the company’s long-time suppliers had already decided to produce in the United States as rising wages in China and elsewhere eroded the allure of offshore production.
It Takes More than Economics 101 to Compete With China
in UncategorizedYet these discussions, as well as the reports and studies they often cite, are almost always purely economic cost analyses. They estimate future wages here and abroad, worker productivity and transportation costs, and they conclude that the manufacturing differences between the United States and Asia are diminishing. They then extrapolate these trends far enough into the future that going to Asia seems no longer worth the trip.
Non-market factors are given at most a minimal mention in many arguments that favor reshoring, as it is called, of Chinese manufactured goods. But China’s exchange rates, as we know, are set by its government, not by markets. The massive government subsidies of land, energy and technology, in addition to low- or no-cost loans, are barely mentioned. These are, however, the levers that have catapulted Chinese industries into global prominence in a very short span of years. And these government actions are not going away; if anything, they are increasing.
Americans are assured, based on flawed analysis, that when U.S. companies find it cheaper to make certain goods domestically, they will do so. What is overlooked in reaching that much-wished-for conclusion is that the Chinese, following the example of other Asian nations, simply do not allow important outcomes to be determined in that way.
China did not get to where it is today by allowing natural economic forces to decide the outcome. The reality is much closer to the exact opposite. An industry is targeted, and then the economic forces needed to obtain a dominant position — including subsidies, special tax rates, exchange rates and technology agreements — are put in place. This fundamental reality cannot be ignored.
One report I am particularly fond of, from the respected Boston Consulting Group, is powerfully titled “Made in America, Again.” The cover is a pleasure for any patriot to see: It is simply a large red, white and blue American flag with small figures unrolling the red stripes, while others check the stripes’ exact locations before fixing them into place. The cover graphically and dramatically suggests the glorious return of U.S. manufacturing.
However, what is inside the report is much less colorful but far more realistic. It concludes that if the United States maintains a “flexible” labor force and a good investment climate, it will become “increasingly attractive” for those who want to stop manufacturing goods in China that are consumed in the United States — attractive, that is, for those who, for one reason or another, find other countries in Southeast Asia unattractive.
This is the feeble manufacturing renaissance promised in the report. To get to this rather wishy-washy conclusion, all sorts of leaps of faith are required both in this specific report and in many similar analyses. One must accept that there will be double-digit yearly increases in Chinese wages. One must accept that American workers will remain more productive than Chinese workers. One must be willing to equate U.S. subsidies — few and far between and tiny as they are — with those employed by the Chinese government. And one must believe that the relatively few small manufacturing plants planning to move back to the United States show that forces are in place to close a yearly manufacturing trade gap measured today in the hundreds of billions of dollars.
But most of all, despite the evidence of recent history, there is a tacit assumption that the Chinese government would simply stand by and let these happy outcomes happen. This is unlikely; the Chinese government does not share our pure and simple faith in the unguided operation of markets.
That China adheres to its system is not surprising; its system has been working for it. What is more surprising is that our faith in our own system is so ingrained that we continue to believe in its benign results even in the absence of the free markets and free trade conditions on which those conclusions are based.
A real manufacturing renaissance in America — at least one based on reshoring from China — is not something we can expect. Forecasts that reach that much-desired conclusion by simply extrapolating cost analyses into the future are not realistic. There is far too much that China and other countries can do to shape the outcome. We would do better to consider what we can realistically do in today’s mercantilist world rather than continue to act as if we were living in a textbook world, a world shaped only by market forces.
Ralph Gomory
Research Prof. NYU, Pres. Emeritus, Alfred P Sloan Foundation, Former IBM SVP Science-Tech
Ralph Gomory was born May 7, 1929, in Brooklyn Heights, New York. He graduated from Williams College in 1950, studied at Cambridge University, and received his Ph.D. in mathematics from Princeton University in 1954. Gomory then served in the Navy (1954-57) and then was a Higgins Lecturer and Assistant Professor of Mathematics at Princeton before joining IBM’s newly formed Research Division in 1959 as a research mathematician.
At IBM Research in the early 1960’s, Gomory published papers with Paul Gilmore on the knapsack, traveling salesman and cutting-stock problems, and with T. C. Hu on flows in multi-terminal networks and continua. In the late 1960’s, he developed the asymptotic theory of integer programming and introduced the concept of corner polyhedra. In the early 1970’s, he collaborated with Ellis Johnson in investigating subadditive functions related to corner polyhedra that could also play a role in producing cutting-planes.
Gomory served as Chairman of IBM Research’s Mathematical Sciences Department from 1965-67 and 1968-70 during an important period of its growth and evolution. This period saw the beginning of Samuel Winograd’s work on limits of algorithms and of Benoit Mandelbrot’s work on fractals.
Gomory became Director of Research for IBM in 1970, with line responsibility for IBM’s Research Division. During his 18 years as Director of Research the Research Division made a wide range of contributions to IBM’s products, to the computer industry, and to science. The Zurich Research Laboratory did the work that resulted in two successive Nobel Prizes in physics, Yorktown Heights Research was the birthplace of what is now known as RISC architecture, and San Jose was the birthplace of the concept, theory and first prototype of relational databases.
Gomory, who had become the IBM Senior Vice President for Science and Technology retire
d f
rom IBM in 1989 and became President of the Alfred P. Sloan Foundation. During his tenure as President he led the foundation into a long list of fields relevant to major national issues. The foundation pioneered in the field of on-line learning supporting this work before there was even a public Internet, and then supported its growth to more than three million people taking courses for credit. They started the now widespread program of industry studies, and engaged a major program advocating a more flexible workplace. The foundation developed a novel and successful approach to the problem of producing minority PhD’s in scientific and technical fields. The foundation was early in perceiving the threat of bioterrorism and was active in that area for years before the events of 9/11. On the scientific side the foundation supported the widely recognized Sloan Sky Survey, which has made major contributions to the problem of dark energy and initiated a major worldwide effort to survey life in the oceans known as the Census of Marine Life. In December 2007, after 18 years as President, Gomory retired from the foundation and became a Research Professor at New York University’s Stern School of Business.
Gomory has served in many capacities in academic, industrial and governmental organizations. He was a Trustee of Hampshire College from 1977-1986 and of Princeton University from 1985-1989. He served on the President’s Council of Advisors on Science and Technology (PCAST) from 1984 to 1992, and again from 2001 to 2009. He served for a number of terms on the National Academies’ Committee on Science, Engineering and Public Policy (COSEPUP). He has recently joined STEP, the Board on Science Technology and Economic Policy of the National Academies.
Gomory has been a director of a number of companies including the Washington Post Company and the Bank of New York. He is currently a director of Lexmark International, Inc., and a small start-up company. He was named one of America’s ten best directors by Director’s Alert magazine in 2000.
Gomory has been elected to the National Academy of Sciences, the National Academy of Engineering, and the American Philosophical Society. He was subsequently elected to the Councils of all three societies. He has been awarded eight honorary degrees and many prizes including the Lanchester Prize in 1963, the Harry Goode Memorial Award of the American Federation of Information Processing Societies in 1984, the John von Neumann Theory Prize in 1984, the Medal of the Industrial Research Society in 1985, the IEEE Engineering Leadership Recognition Award in 1988, the National Medal of Science awarded by the President in 1988, the Arthur M. Bueche Award of the National Academy of Engineering in 1993, the Heinz Award for Technology, the Economy and Employment in 1998, the Madison Medal Award of Princeton University in 1999, the Sheffield Fellowship Award of the Yale University Faculty of Engineering in 2000, the International Federation of Operational Research Societies’ Hall of Fame in 2005, and the Harold Larnder Prize of the Canadian Operational Research Society in 2006.
While continuing his research on integer programming Gomory has written on the nature of technology development, research in industry, and industrial competitiveness, and on models of international trade involving changing technologies and economies of scale. He is the author, with Professor William Baumol, of the book Global Trade and Conflicting National Interests (MIT Press 2001).
Manufacturing Growth Is Fastest In 2½ Years
in UncategorizedIt was the fifth straight gain for the index. A measure of new orders rose slightly, while a gauge of production fell but remained at a high level. Factories added jobs, though at a slower pace than the previous month.
A measure of export orders jumped to its highest level in nearly a year and a half, a sign of improving economies overseas.
Factories also benefited from a robust U.S. auto industry that is having its best year since the recession began.
Car sales have soared this year and overseas growth in Japan and Europe has picked up a bit.
China’s economy has also picked up after slowing earlier this year. A measure of manufacturing in China, released Friday, showed its best improvement in seven months.
Still, the shutdown slowed activity at companies that make metal products and electrical equipment, according to the ISM survey.
And factories barely increased their output in September, the Federal Reserve said on Monday. Automakers produced more, but that gain was offset by declines at companies that make computers, furniture and appliances.
Companies reduced demand for long-lasting factory goods in September, the Commerce Department said last week. Orders for industrial machinery, electrical equipment and other core capital goods fell 1.1%. August’s orders were revised down to a 0.4% gain, from 1.5%.
Economists pay particular attention to core capital goods, which exclude aircraft and defense-related goods, because they reflect business confidence.
Still, economists don’t expect manufacturing to boost economic growth in the coming months. Growth likely fell to an annual rate of just 1.5% to 2% in the July-September quarter, down from a 2.5% pace in the April-June period. Most economists expect similarly slow growth in the final three months of the year.
Contributing: Associated Press
Buy American? Sure, When It Makes Sense
in Made in USA, UncategorizedThe Real Reason Why Washington Should Care About Manufacturing
in UncategorizedAnd getting the answer right is imperative because many economists, like Nobel Laureate Gary Beckerand Columbia’s Jadish Bhagwati, persist in trying to convince policy makers that America can thrive without manufacturing, and in fact would be better off without it.
Here are some reasons that don’t really matter. Read more: http://www.industryweek.com/global-economy/real-reason-why-washington-should-care-about-manufacturing
Why America Needs a National Manufacturing Strategy
in UncategorizedUnfortunately, manufacturing in the United States has lost competitive advantage in the last 15 years and unless this turns around significantly it will continue to be a drag on our efforts to fully recover from the Great Recession.
There is no inherent reason the United States could not run a significant trade surplus in manufacturing. America possesses the tools, talent, and resources to revive industrial production and our innovation economy.
Read the entire article: http://www.industryweek.com/competitiveness/why-america-needs-national-manufacturing-strategy?page=1
Consumer Confidence Plunges On Shutdown
in UncategorizedConsumers became particularly pessimistic in their outlook on the economy six months from now, while their assessment of current economic conditions declined by much less. They also expect less hiring in the months ahead. Consumers’ confidence is closely watched because their spending accounts for 70% of economic activity.
Americans became more confident in the spring as job gains were healthy and economic growth improved. The Conference Board’s measure reached 82.1 in June, the highest in 5 ½ years. That’s still below the reading of 90 that is consistent with a healthy economy.
Confidence has dropped in three of the four months since June. The shutdown already caused a drop this month in the University of Michigan’s measure of consumer sentiment. Americans made more negative references to the federal government’s impact on the economy in October than at any time in the 50-year history of the survey, the university said.
Falling confidence can cause Americans to spend less, which would slow the economic growth. But sometimes consumers spend more, even when they say they are less confident.
Weaker job growth is also weighing on consumers’ outlook. Employers added an average of just 143,000 jobs a month from July through September. That’s down from 182,000 a month in April through June and 207,000 in the first three months of the year.
Sluggish spending is likely to weigh on economic growth. Most economists predict growth slowed in the July-September quarter to an annual rate of about 1.5% to 2%, down from a 2.5% rate in the April-June quarter. And the shutdown is likely to keep growth at a tepid pace for the final three months of the year.
Private Sector Adds 130,000 Jobs in October
in UncategorizedService industries added the most jobs, but still fewer than last month at 107,000 compared with 130,000 in September. Trade, transportation, and utilities businesses had the biggest October jobs growth within the service sector.
October jobs performance among private employers was “well below the average of the last 12 months,” ADP President and CEO Carlos Rodriguez said in a company statement.
He added that large businesses fared better than small businesses in terms of payroll growth between September and October.
Mark Zandi, Moody’s Analytics chief economist, warned that if private sector jobs growth doesn’t recover, the country could face an increase in unemployment.
“The government shutdown and debt limit brinksmanship hurt the already softening job market in October,” he said in an ADP release. “Any further weakening would signal rising unemployment.”
Owens Corning To Establish Manufacturing Facility In Gastonia, N.C.
in Uncategorized“Gastonia provides a great foundation for our new glass nonwoven facility with its location near the Charlotte and Research Triangle regions, where there are particular concentrations of skills needed for this business; its proximity to key customers; and its attractive business environment,” said Arnaud Genis, group president, Owens Corning’s Composite Solutions Business. “The Gastonia operation will support growing customer demand for glass non-woven products serving the global building materials market, complementing our existing facilities in Europe and North America, and enhancing Owens Corning’s leadership position in the provision of glass nonwoven technologies.”
The company reports its glass fiber materials are used in more than 40,000 end-use composites applications in the global transportation, industrial and construction industries.
OLYMPIC TEAM USA UNIFORMS GET MADE IN USA LABEL
in UncategorizedRalph Lauren Corp., which has been making most of the athletes’ clothes since 2008 when it took over from Canadian clothier Roots, got the message.
“We have worked incredibly hard as a company to go across America to find the best partners to help us produce the Olympic uniforms at the highest quality for the best athletes in the world,” said David Lauren, the company’s executive vice president of advertising, marketing and corporate communications.
They used more than 40 vendors, from ranchers in the rural West to yarn spinners in Pennsylvania to sewers in New York’s Garment District for the closing ceremony outfits unveiled Tuesday. The ensemble includes a navy peacoat with a red stripe, a classic ski sweater with a reindeer motif and a hand-sewn American flag, and a tasseled chunky-knit hat.
(Individual clothes for competition are made by different, mostly athletic-gear brands, depending on the sport, technical aspects and sponsorship deals. Those outfits didn’t seem part of the earlier overseas outcry, but some companies, such as The North Face, which is making the freeskiing uniforms, have committed to U.S. manufacturing, too.)
Figure skater Evan Lysacek, who won gold in Vancouver in 2010, said the ceremonial uniforms make the athletes stand a little prouder.
“As an athlete, the clothing means even more than you’d think. The training, the sacrifices, the lifestyle, which is not glamorous and can be grueling and trying at times, all seem to come together in the moment when you realize you are part of the Olympic team,” he said. “The moment you put on those first pieces of the American team clothes, you feel like it’s real.”
Moving production to the U.S., though, was a lesson in the state of American manufacturing. It was hard to come by facilities that could create the quantity and quality needed for the Olympic uniforms and the versions that will be sold to the public, David Lauren said. As a result, there are fewer pieces in the collection for 2014.
During the London flap, he said, “what no one wanted to look at was the true complexity of making Olympic uniforms. We would have done it here if we could, but it was so much more complicated than people realized. Lots of places said they could help us make them, but when we called them, they couldn’t. It was grandstanding by a lot of companies. But we have since found manufacturers, and there are many more out there and we will keep reaching out.”
Jeanne Carver of rural Maupin, Ore., couldn’t quite believe the call that came 18 months ago.
Imperial Stock Ranch, founded in 1871 and now run by Carver and her husband, Dan, was at a make-or-break time, especially for its sheep business. They kept hearing that apparel manufacturing was going offshore and they wouldn’t ship U.S. wool overseas, Carver said. Then the phone rang in the summer of 2012.
“I thought the phone was the tinkling of sheep bells!” Carver said. But it was the product development director for the Ralph Lauren knitwear division. “I literally said to him, ‘You are kidding me!'”
When Robert Cramer told her he was looking for yarn for Team USA sweaters and asked for a tour, “The two things that went through my head were, ‘Oh my god, what will I wear? And what am I going to feed fashion people from New York?!'”
(She went with her “clean” cowboy boots and a menu that included lasagna made with ground beef from the ranch.)
The fact that these were for Olympic uniforms was “icing on the cake.” She was just so appreciative that a big company was paying attention to domestic ranchers and farmers, wool dyers and sewers.
The athletes are happy to see more Americans represented, too, says Lysacek.
“What I hear from the athletes on this topic is that we go out in the Olympic Games and in every competition, we represent the United States of America. I might not know every citizen, but I represent them,” he said. “The more people who are tied into the Olympic story, the closer to home each story hits.”
The U.S. as One of the Developed World’s Lowest-Cost Manufacturers
in ManufacturingExport manufacturing has recently become the unsung hero of the U.S. economy. Despite all the public focus on the U.S. trade deficit, little attention has been paid to the fact that the country’s exports have been growing more than seven times faster than GDP since 2005. As a share of the U.S. economy, in fact, exports are at their highest point in 50 years.
But this is likely to be just the beginning. We project that the U.S., as a result of its increasing competitiveness in manufacturing, will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade. About two-thirds of these export gains could come from production shifts to the U.S. from leading European nations and Japan. By 2020, higher U.S. exports, combined with production work that will likely be “reshored” from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.
Our perspective is based on shifts in cost structures that increasingly favor U.S. manufacturing. In the first two reports in our Made in America, Again series, we explained how China’s once overwhelming production-cost advantage over the U.S. is rapidly eroding because of higher wages and other factors—and how these trends are likely to boost U.S. manufacturing in specific industries. Below, we focus on America’s increasing cost-competitiveness in manufacturing compared with leading advanced economies that are major exporters.
Our analysis suggests that the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. We estimate that by 2015, average manufacturing costs in the five major advanced export economies that we studied—Germany, Japan, France, Italy, and the U.K.—will be 8 to 18 percent higher than in the U.S. Among the biggest drivers of this advantage will be the costs of labor (adjusted for productivity), natural gas, and electricity. As a result, we estimate that the U.S. could capture up to 5 percent of total exports from these developed countries by the end of the decade. The shift will be supported by a significant U.S. advantage in shipping costs in important trade routes compared with other major manufacturing economies.
These shifting cost dynamics are likely to have a significant impact on world trade. China and the major developed economies account for around 75 percent of global exports. And the U.S. export surge will be felt across a wide range of U.S. industries.
The most profound impact will likely be on industrial groups that account for the bulk of global trade, such as transportation equipment, chemicals, machinery, and computer and electronic products. Production gains will come in several forms. In some cases, companies will increasingly use the U.S. as a low-cost export base for the rest of the world. In other cases, U.S. production will displace imports as both U.S. and foreign companies relocate the manufacturing of goods sold in the U.S. that otherwise would have been made offshore.
The full impact of the shifting cost advantage will take several years to be felt in terms of new production capacity. And the magnitude of the job gains will depend heavily on the degree to which the U.S. can continue to enhance its global competitiveness. One of the biggest challenges facing U.S. manufacturers is the supply of skilled labor. As we explained in a previous publication, however, our analysis shows that, in the short term, any U.S. manufacturing skills gap is unlikely to be significant enough to curtail a U.S. manufacturing resurgence. Rather, such shortages are more of a long-term risk if action is not taken soon to train and recruit new skilled workers.
Companies should, of course, continue to maintain diversified manufacturing operations around the world. But at the same time, they must be aware that the structural changes in production cost structures represent a potential paradigm shift for global manufacturing that warrants immediate attention.
The Pendulum Swings Back
For much of the past four decades, manufacturing work has been migrating from the world’s high-cost to its low-cost economies. Generally, this has meant a transfer of factory jobs of all kinds from the U.S. to abroad.
The pendulum finally is starting to swing back—and in the years ahead, it could be America’s turn to be on the receiving end of production shifts in many industries. In previous reports, we cited a number of examples of companies that have shifted production to the U.S. from China and other low-cost nations. These companies range from big multinationals like Ford and NCR to smaller U.S. makers of everything from kitchenware and plastic coolers to headphones. More recently, computer giant Lenovo opened a plant to assemble Think-brand laptops, notebooks, and tablets in North Carolina. Toshiba Industrial has moved production of its hybrid-electric vehicle motors from Japan to Houston. Airbus has broken ground on a $600 million assembly line in Mobile, Alabama, for its A320 family of jetliners; the facility will create up to 1,000 high-skilled jobs. Flextronics, one of the world’s largest electronics-manufacturing-services companies, has announced that it will invest $32 million in a product innovation center in Silicon Valley. The company’s CEO was quoted in the Wall Street Journal as saying that Flextronics may need to add 1 million square feet of manufacturing capacity in the U.S. over the next five years, depending on economic conditions.
There also is early evidence that foreign manufacturers are starting to move production to or expand production capacity in the U.S. for export around the world.
ina
to make large tires for earth movers used in the mining and construction industries. The Financial Times reported that at least 80 percent of the additional output will be exported.
While the impact of this trend on U.S. jobs is currently modest, we expect a significant increase in such announcements starting around 2015, as the economic case for reshoring to the U.S. grows stronger—and as companies adjust their global manufacturing footprints accordingly.
The U.S. as a Low-Cost Country
The U.S. now has a distinct production-cost advantage compared with other developed economies that are leading manufacturers. We estimate that due to three factors alone—labor, natural gas, and electricity—average manufacturing costs in the U.K. will be 8 percent higher than in the U.S. by 2015. Costs will be 10 percent higher in Japan, 16 percent higher in Germany and in France, and 18 percent higher in Italy. (See Exhibit 1.) There are three key drivers of this cost advantage.
The U.S. labor market is currently more attractive than that of all other major manufacturers among the developed economies. This is especially true when factory wages are adjusted for output per worker, which is considerably higher in the U.S. than in Europe and Japan. Only a decade ago, average productivity-adjusted factory labor costs were around 17 percent lower in the U.S. than in Europe, and only 3 percent lower in the U.S. than in Japan. The productivity gap between these nations and the U.S. has widened considerably over the past ten years. We project that by 2015, average labor costs will be around 16 percent lower in the U.S. than in the U.K., 18 percent lower than in Japan, 34 percent lower than in Germany, and 35 percent lower than in France and Italy. (See Exhibit 2.)
An added advantage of the U.S. labor market is its relative flexibility. The Fraser Institute ranks the U.S. as the world’s third-most-favorable economy in terms of labor market regulation. In contrast, Japan and the U.K. rank 14 and 15, Italy ranks 72, France ranks 94, and Germany ranks 112.
A major reason for this high ranking is that it is far easier and less costly in the U.S. than in most other advanced economies to adjust the size of the workforce in response to business conditions. In Germany, for example, we estimate government-mandated costs of approximately $8 million to shutter an average, 200-worker plant and more than $40 million to close a 1,000-worker plant. These costs are associated with the need to comply with rules governing severance pay and the advance notice that must be given to long-term employees. However, the actual cost of shutting a German factory can be significantly higher. German law mandates that workers may remain on the job, at full pay, for anywhere from a few months to more than a year, depending on how long they have been employed by the company, while layoff terms are being negotiated and after notification of a layoff has been received. Specific union contracts, asset write-downs, requirements to retrain workers, and other factors can also add to exit costs. These are major considerations when European companies decide where to make new long-term investments in manufacturing capacity.
Energy
Rapid technological progress in hydraulic fracturing is making it more economically feasible to unlock vast U.S. natural gas and oil deposits from shale. Since 2003, U.S. production of shale gas increased more than tenfold. This has helped push down the U.S. wholesale price of natural gas by 51 percent since 2005. By 2020, recovery costs from shale are expected to be half what they were in 2005—giving the U.S. a much larger supply of inexpensive natural gas. By 2035, U.S. shale-gas production is projected to double again, to 12 trillion cubic feet.
Most public attention to this development has focused on the implications for U.S. energy security. Less appreciated is the fact that cheap domestic sources of natural gas translate into a significant competitive advantage for a number of U.S.-based industries. Natural gas costs anywhere from 2.6 to 3.8 times higher in Europe and Japan than in the U.S. (See Exhibit 3.) The American advantage will likely grow further in the future: the most recent estimates suggest that the U.S. has more than 350 trillion cubic feet of proven shale-gas reserves, plus another 1,600 trillion cubic feet of potential shale-gas resources. That is more than four times the reserves of Western Europe. Japan’s reserves of both shale and conventional gas are negligible.
There are two important implications for industry. First, natural gas is a key feedstock for chemicals and plastics and is a significant cost in the manufacture of primary metals, paper, synthetic textiles, and nonmetallic mineral products. Second, gas-fired power plants are an important source of electricity in the U.S. So cheap natural gas will contribute to keeping power costs lower for U.S.-based industry. Industrial electricity prices are currently 61 percent higher in France, 92 percent higher in the U.K., 107 percent higher in Germany, 135 percent higher in Japan, and 287 percent higher in Italy. Lower electricity rates add a further cost advantage of several percentage points to energy-intensive U.S.-based industries such as metals and paper.
Shipping Rates
Our calculations of manufacturing costs in the U.S. and other developed economies did not factor in a projection for shipping expenses. On several important international trade routes, however, transportation costs give U.S.-based manufacturers another significant advantage. The large trade deficits that the U.S. has run up in the past decade have had a perverse impact on the shipping industry. Containers have been arriving in U.S. ports filled with imported products—and sometimes departing empty. The ports of Los Angeles, Long Beach, New York, Seattle, and Tacoma all process more than twice as many U.S. imports as exports. Meanwhile, capacity at U.S. ports nearly doubled between 2000 and 2008. As a result, the capacity utilization rate at U.S. ports was only around 54 percent as of 2010—one of the lowest rates in the world. In Europe, ports in 2010 were operating at 59 percent of capacity. Utilization rates were at 69 percent in Northeast Asia and 76 percent in Southeast Asia.
The imbalanced trade flow has translated into low outbound-freight costs on a number of important trade routes. In late 2011 and early 2012, it cost an average of $3,900 per 40-foot equivalent unit (FEU), or around 72 cubic meters of container space, to ship goods from Yokohama to Rotterdam. The comparable shipping rate from New York City was $1,400. Although freight costs from the west coast of the U.S. to Japan are only slightly lower than those from Europe to Japan, U.S. exporters have an advantage because the shipping distance is shorter, meaning they can more quickly get their goods to Japanese buyers. Because so many shipping containers from the U.S. to China are returning empty, freight costs from the U.S. to China are particularly cheap—just $850 per FEU. That compares with $700 per FEU from neighboring Japan. As a result, Japan’s proximity to China will not necessarily be enough to offset the U.S. advantage in lower overall production costs for many products that are not time sensitive.
One event that c
ould sign
ificantly change the cost balance, of course, is a sharp depreciation of the euro against the U.S. dollar. The dollar did indeed increase in value from around $1.60 per euro in early 2008 to around $1.20 per euro in mid-2012 as a result of the global financial crisis. But the dollar would have to appreciate even more dramatically—to below $1 per euro—for Germany, France, and Italy to approach cost parity with the U.S. by 2015. We will continue to monitor this and other cost factors as we continue our research on the competitiveness of the major manufacturing economies.
Many may assume that most of the production displaced from these developed economies will shift to China rather than to the U.S. But for reasons we explained in an earlier report in this series (Made in America, Again: Why Manufacturing Will Return to the U.S., BCG Focus, August 2011), wages have been rising so rapidly in China that its cost advantage over the U.S. by 2015 is projected to be only around 5 percent for many goods exported to North America. When logistics, shipping costs, and the many risks of operating extended global supply chains are factored in, it will be more economical to make many goods now imported from China in the U.S. if they are consumed in the U.S.
The Impact on U.S. Exports
The U.S. export sector is already a little-noticed bright spot in the U.S. economy. Since 2005, export growth has averaged nearly 8 percent per year—despite the global recession of 2008 to 2009. Exports of U.S. goods, excluding food and beverages, now account for around 10 percent of U.S. GDP, the largest share in five decades. In the 1960s, when the U.S. was the world’s dominant manufacturer, exports accounted for only around 4 percent of GDP. What’s more, while the share of global exports by Western Europe and Japan declined between 2005 and 2010, U.S. exports have held steady at around 11 percent.
This momentum is likely to accelerate. Because of lower costs, we project that by the end of the decade, the U.S. could capture $20 billion to $55 billion in annual exports from the four Western European nations we studied, which would represent 2 to 5 percent of those nations’ total exports. In addition, we estimate that the U.S. could capture $5 billion to $12 billion in Japanese exports by that time, or 1 to 2 percent of Japan’s total current exports.
The Impact on U.S. Jobs
We estimate that the increase in U.S. exports and in the domestic production of goods that otherwise would have been imported will create between 600,000 and 1.2 million direct factory jobs. Another 1.9 million to 3.5 million jobs could be created indirectly in related services such as retail, transportation, and logistics. (See Exhibit 4.) We base these estimates on average output per worker and the multiplier effect in each industry category. In the transportation equipment sector, for example, every $140,000 in additional output on average creates one new job. A boost in U.S. production of $3 billion to $9 billion, therefore, would create 20,000 to 65,000 factory jobs. Each transportation-equipment production job, in turn, creates 3.6 jobs indirectly in other areas of the economy. That translates into an overall job increase of 110,000 to 290,000 in the U.S. transportation-equipment industry as a result of increased exports and reshored production.
If our projection of 2.5 to 5 million new U.S. jobs is accurate, the U.S. unemployment rate could drop by 2 to 3 percentage points. That would push the U.S. rate toward the “frictional” level, meaning the unemployment that normally occurs in an economy as workers change jobs.
Where the Gains Will Come
The gains in U.S. exports are likely to be felt across a wide range of industries. The U.S. is particularly well positioned compared with the five developed economies to increase exports in seven industrial categories: transportation equipment, chemicals, petroleum and coal products, computer and electronic products, machinery, electrical equipment, and primary metals. (See Exhibit 5.) These seven groups of industries accounted for roughly 75 percent ($12.6 trillion) of total global exports in 2011. Let’s look at three of them a little more closely.
This industrial category includes cars, trucks, buses, and aircraft. We project that in 2015, the U.S. will have an 11 percent cost advantage over Germany, which exported $319 billion in transportation equipment in 2011, and a 6 percent advantage over Japan, which exported $191 billion. The lower cost of labor accounts for virtually the entire U.S. cost advantage in this category. When adjusted for productivity, Japanese labor costs in transportation equipment manufacturing will be 22 percent higher than those of the U.S. German, French, and Italian labor costs will be 50 percent higher.China will still have an average production-cost advantage of around 6 percent in 2015 for transportation equipment. When shipping and other costs are accounted for, however, it will make more economic sense for such products to be made in the U.S. if they are consumed in the U.S.We project that by 2015, the U.S. will gain $3 billion to $9 billion in exports of transportation equipment from Western Europe and Japan.
Chemicals
The low cost of natural gas in the U.S. will become a particularly significant factor in the production of chemicals, where natural gas is often an important feedstock. Production costs in Germany, a leading chemical exporter, are projected to be 29 percent higher than in the U.S. in 2015. Chemical production costs are projected to be 17 percent higher in the U.K., 27 percent higher in Italy and Japan, and 28 percent higher in France.
A breakdown of the cost structures in each country shows why. Although the cost of German labor will be more than 50 percent higher, for example, the biggest impact will be from differences in natural gas prices, which will be more than three and a half times higher in Germany than in the U.S. Put another way, while natural gas will account for 8 percent of the total production cost of U.S.-made chemicals, it will account for 29 percent of costs in Germany. In the case of Japan, natural gas costs in chemical manufacturing will be nearly four times higher than in the U.S. in 2015. A further consideration is electricity rates, since chemical production is power intensive. We estimate that lower electricity rates will give the U.S. an additional cost advantage, ranging from 1 percentage point over the U.K., France, and Germany to 4 percentage points over Italy.
The U.S. will have a significant cost advantage over China in chemical production in 2015 as well. We project that costs in China’s Yangtze River Delta region will be 16 percent higher, with natural gas prices more than offsetting any advantage that China will have in labor costs.
We project that by 2015, the U.S. will gain $7 billion to $12 billion in chemical exports from Western Europe and Japan.
Machinery
This broad category includes everything from construction and industrial machinery to engines and air conditioners. The U.S. will have a manufacturing cost advantage in machinery of around 7 percent over Japan, where machinery is a $143 billion export industry. Machinery production costs will be around 14 percen
t high
er in Germany, which exported $216 billion in machinery in 2011, 14 percent higher in France, and 15 percent higher in Italy. Labor, a major cost in machinery manufacturing, is the big differentiator.
Projected total costs for machinery production will be around 8 percent lower in China in 2015. But when other costs are considered, it will likely be more cost-effective to produce much of the machinery that is sold in the U.S. in the U.S.
We project that by 2015, the U.S. will gain $3 billion to $12 billion in machinery exports from Western Europe and Japan.
The Key Messages for Manufacturers
Such core U.S. cost advantages as cheap energy and labor adjusted for productivity are likely to persist for at least the next five to ten years. As a result, the steady emergence of the U.S. as one of the lowest-cost countries of the developed world is a trend that is likely to have major implications for manufacturers around the world in a wide range of product categories across a wide range of industries. In the near term, the new math of manufacturing requires that many companies reassess their global production strategy.
We have long advised companies to maintain a diversified global manufacturing footprint in order to have the flexibility to respond to unanticipated changes and to expand or reduce production quickly in response to the competitive needs of specific markets. This advice continues to hold true. We also advise companies to carefully consider the total cost of ownership over the lifetime of the investment when deciding where to build new production capacity.
The shifting cost dynamics, however, suggest that more companies should consider the U.S. as a manufacturing option for global markets. A number of leading manufacturers based in Europe and Asia have already begun to use the U.S. as a major export platform or have announced plans to do so. Others are relocating offshore production to the U.S. of goods to be consumed in North America. We believe that these companies are the early movers in what is likely to become a more widespread trend by 2020.
Companies that fail to take into account these cost shifts when making long-term investments could find themselves at a competitive disadvantage. Improving U.S. cost-competitiveness compared with developed economies, combined with rising costs in such offshore-manufacturing havens as China, represent what we believe is a paradigm shift that could usher in an American manufacturing renaissance.
To Contact the Authors
Harold L. Sirkin
Senior Partner & Managing Director
Chicago
Michael Zinser
Partner & Managing Director
ChicagoJustin Rose
Partner & Managing Director
Chicago
AcknowledgmentsThis report would not have been possible without the efforts of Justin Baier, Brianne Blakey, Collin Galster, Matt Gamber, Louis Hobson, Frank Roberts, Daniel Spindelndreier, and Steven Won of The Boston Consulting Group project team. The authors also would like to thank Alexandra Corriveau, Madeleine Desmond, David Fondiller, Beth Gillett, and Mike Petkewich for their guidance and interaction with the media, Pete Engardio for writing assistance, and Katherine Andrews, Angela DiBattista, Gina Goldstein, and Sara Strassenreiter for editing, design, and production.
Made In The U.S.A. Should Boost The Dollar
in UncategorizedBut what does this spending shift, also called import substitution, have to do with the direction of the U.S. dollar? The answer lies in the combination of the external balance, or trade balance, and the internal balance, or unemployment rate. Those two balances, trade balance and unemployment rate, are “the two most fundamental variables for any currency,” said Woo in an interview.
As domestic demand increases, that spending can either focus on domestic or imported goods and services. A focus on domestic goods, as is currently the case, would lead to a decline in the unemployment rate, according to the note.
And here’s the tie-in to the Federal Reserve, which currently keeps interest rates low. The Fed has set an unemployment threshold (not trigger, as officials like to remind us) of 6.5% unemployment for a change in interest rates.
So the shift in spending habits, or import substitution, which is creating jobs and driving the unemployment rate lower, will eventually lead the Fed to hike interest rates and push the dollar higher. “Ultimately, for the dollar to strengthen, we need the Fed to hike rates,” Woo said.
Chinese Treats Are Mysteriously Killing American Pets
in UncategorizedDespite the growing number of reports, though, the FDA has been unable to identify the root cause. That’s not for a lack of effort. The agency said it had conducted more than 1,200 tests of Chinese jerky in recent years, visited the treats’ manufacturers, and reached out to foreign experts and leading academics for help.
Still, the spate of illnesses remains “one of the most elusive and mysterious outbreaks we’ve encountered,” Bernadette Dunham, head of the FDA’s Center for Veterinary Medicine, said in a statement.
The FDA has been raising red flags about the safety of Chinese-produced snacks for some time.
Back in 2007, the FDA launched an investigation into dog treats pulled from Walmart stores. And in January, two of the largest retailers of pet jerky — Nestle Purina Petcare and Del Monte Corp. — pulled select products from shelves after they were found to contain residual traces of banned antibiotics.
However, the FDA said at the time that there was “no evidence that raises health concerns,” and that the products were “highly unlikely” to be related to the mounting death reports. (The antibiotics in question are outlawed in the U.S., but widely used abroad, including in the European Union.) And while the rate of illnesses has fallen since that recall, the FDA theorizes that the drop was likely the result of a decreased demand for treats overall, and not the result of deadly meat leaving the market.
The rise in pet illnesses correlates to a massive spike in the volume of pet food imported from China. In 2003, the U.S. imported 1.1 million pounds of cat and dog food from China; that figure leapt to 85.8 million pounds in 2011.
Several federal lawmakers last year asked the FDA to issue a blanket recall of Chinese jerky treats, questioning why it had yet to do so despite thousands of reported illnesses. Former Rep. Dennis Kucinich (D-Ohio) labeled the products “death treats,” while Rep. Jerry McNerney (D-Calif.) wrote to the Chinese government asking it to consider a moratorium on production until the FDA could determine whether the products “contain tainted material.”
Given the booming business, though, China’s government declined the request, instead casting blame on the FDA.
“From the perspective of the Chinese side, there might be something wrong with the FDA’s investigation guidance,” Beijing wrote.
For its part, the FDA has said such a recall would be impractical given the government’s limited understanding of the cause of the illnesses. Instead, the agency has now called on veterinarians and pet owners to help them out and report any new suspected cases as soon as possible.
Why Are Jerky Treats Making Pets Sick?
in UncategorizedTo date, FDA’s Center for Veterinary Medicine (CVM) has conducted more than 1,200 tests, visited jerky pet treat manufacturers in China and collaborated with colleagues in academia, industry, state labs and foreign governments. Yet the exact cause of the illnesses remains elusive.
To gather even more information, FDA is reaching out to licensed veterinarians and pet owners across the country. “This is one of the most elusive and mysterious outbreaks we’ve encountered,” says CVM Director Bernadette Dunham, DVM, Ph.D. “Our beloved four-legged companions deserve our best effort, and we are giving it.”
In a letter addressing U.S. licensed veterinarians, FDA lists what information is needed for labs testing treats and investigating illness and death associated with the treats. In some cases, veterinarians will be asked to provide blood, urine and tissue samples from their patients for further analysis. FDA will request written permission from pet owners and will cover the costs, including shipping, of any tests it requests.
Meanwhile, a consumer fact sheet will accompany the letter to veterinarians so they can alert consumers to the problem and remind them that treats are not essential to a balanced diet. The fact sheet also explains to consumers how they can help FDA’s investigation by reporting potential jerky pet treat-related illnesses online or by calling the FDA Consumer Complaint Coordinator for their state.
What to Look Out For
Within hours of eating treats sold as jerky tenders or strips made of chicken, duck, sweet potatoes and/or dried fruit, some pets have exhibited decreased appetite, decreased activity, vomiting, diarrhea (sometimes with blood or mucus), increased water consumption, and/or increased urination.
Severe cases have involved kidney failure, gastrointestinal bleeding, and a rare kidney disorder. About 60 percent of cases involved gastrointestinal illness, and about 30 percent involved kidney and urinary systems.
The remaining cases reported various symptoms, such as collapse, convulsions or skin issues.
Most of the jerky treats implicated have been made in China. Manufacturers of pet foods are not required by U.S. law to state the country of origin for each ingredient in their products.
A number of jerky pet treat products were removed from the market in January 2013 after a New York State lab reported finding evidence of up to six drugs in certain jerky pet treats made in China. While the levels of these drugs were very low and it’s unlikely that they caused the illnesses, FDA noted a decrease in reports of jerky-suspected illnesses after the products were removed from the market. FDA believes that the number of reports may have declined simply because fewer jerky treats were available.
Meanwhile, the agency urges pet owners to be cautious about providing jerky treats. If you do provide them and your pet becomes sick, stop the treats immediately, consider seeing your veterinarian, and save any remaining treats and the packaging for possible testing.
What FDA Is Doing
More than 1,200 jerky pet treat samples have been tested since 2011 for a variety of chemical and microbiological contaminants, from antibiotics to metals, pesticides and Salmonella. DNA testing has also been conducted, along with tests for nutritional composition.
In addition to continuing to test jerky pet treat samples within FDA labs, the agency is working with the Veterinary Laboratory Investigation and Response Network (Vet-LIRN), an FDA-coordinated network of government and veterinary diagnostic laboratories across the U.S. and Canada. (A summary of the tests is available on Vet-LIRN’s webpage.)
Inspections of the facilities in China that manufacture jerky products associated with some of the highest numbers of pet illness reports did not identify the cause of illness. However, they did identify additional paths of investigation, such as the supply chain of some ingredients in the treats. Although FDA inspectors have found no evidence identifying the cause of the spate of illnesses, they did find that one firm used falsified receiving documents for glycerin, a jerky ingredient. Chinese authorities informed FDA that they had seized products at the firm and suspended its exports.
To identify the root cause of this problem, FDA is meeting regularly with regulators in China to share findings. The agency also plans to host Chinese scientists at its veterinary research facility to increase scientific cooperation.
FDA has also reached out to U.S. pet food firms seeking further collaboration on scientific issues and data sharing, and has contracted with diagnostic labs.
“Our fervent hope as animal lovers,” says Dunham, “is that we will soon find the cause of—and put a stop to—these illnesses.”
This article appears on FDA’s Consumer Updates page, which features the latest on all FDA-regulated products.
Oct. 22, 2013
John Ratzenberger’s American Made TV Show Kicks off Campaign in FundAnything
in NewsA video release on the show and campaign
“From the things we need, to the things we want, to the things we dream about— we’re going to show you the best of our country’s home grown products,” says Ratzenberger. “But more importantly, we’ll highlight the remarkable men and women who use their skills and ingenuity to create goods they can proudly call made in the USA.”
The show will also empower viewers with a direct and easy path on where to buy the products profiled. The series will be produced with RealityTVStar.com, which Ratzenberger co-founded.
“We chose to crowd fund the initial few episodes for strategic reasons,” said RealityTVStar.com CEO, Jeffrey Solomon. “Crowd funding is an excellent way to mobilize fans and promote our American made corporate partners before the show launches. It’s also an excellent way to allow the public to be a part of the show before its release on TV.”
Crowd funding has grown into an extremely successful method to fund creative projects without the bureaucracy of corporate mandates. Ratzenberger’s campaign will give donors a chance to be on the show; join John at a VIP events; receive products profiled, and many more opportunities only available to donors. He has already signed on 30+ American-made companies and industry groups.
Those interested in participating in John’s FundAnything campaign can visit http://www.Fundanything.com/americanmade for more details. Individuals can also see these companies/industry groups on the TV series Facebook page at http://www.facebook.com/americanmadewithjohn.
Ratzenberger’s career includes 40 feature films and dozens of television shows including the highly successful ‘John Ratzenberger’s Made in America,’ which ran 5 seasons on the Travel Channel from 2004 to 2008. John is currently a regular on FX’s ‘Legit,’ and has recently appeared on Fox’s ‘Bones,’ CBS’s ‘CSI,’ Lifetime’s ‘Drop Dead Diva,’ and TNT’s ‘Franklin & Bash.’ He is also in production for the newest Pixar film ‘Inside Out.’
About Reality TV Star
RealityTVStar.com is a reality TV production company that uses technology to improve the process of developing, casting and producing reality TV shows. RealityTVStar.com offers fans the ability to upload “slice of life,” casting, and “home” video clips, for the chance to be discovered by the RealityTVStar.com team of producers.
Manufacture New York Provides Production Facilities to Independent Designers
in UncategorizedThis represents a minor hiccup for Ms. Bland, 30, who has been rallying support and financing for an idea she said, “came to me fully formed, almost as a dream.” The garment district space will be dwarfed by the 160,000-square-foot clothing design and production center she is planning to open in 2014, in an industrial lot, Industry City, in Sunset Park, Brooklyn, that also houses artists’ studios, a microbrewery and the fashion label Rag & Bone (one of whose investors, the Theory chief executive Andrew Rosen, has also been of late carrying out plans to encourage local manufacturing with the Council of Fashion Designers of America).
Ms. Bland pointed out that New York’s garment manufacturing industry has seen a 90 percent decrease in jobs since the early 1990s and said the main motivation behind Manufacture New York “is to provide talented, hard-working designers with the resources they need to make a living doing what they love.” She said both facilities were “a culmination of my entire career in fashion, both as a corporate and an independent designer.”
“I was sick of hearing about small labels going bust,” she said, “and also very aware of the difficulties in keeping an ethical global supply chain.”
Jessica Lapidos of Tilly and William, a unisex label, was one of the first of some 40-odd designers who have already signed up, pleased by the promise of technology “typically accessible solely to big businesses,” she said, like pattern-making software, photo-studio space and sales representation. “They’re responding to the challenges of being a designer from every angle,” she said.
Ms. Bland said she would be able to accommodate up to 70 designers, charging them a monthly membership fee of $275 for access to design space alongside high-quality production facilities. “We want to unite the two,” she said, adding with a note of sarcasm, “How radical!”
Ms. Bland, who has worked on the design floor at labels including Tommy Hilfiger and Ralph Lauren, indeed sounds like a woman radicalized. “Outsourcing production overseas used to seem like a magic solution when it came to producing affordable product for a thrifty, trend-driven consumer,” she said. “But what are the actual costs?”
She described a Chinese factory she visited while working for Triple Five Soul, a streetwear label. “It was by no means a sweatshop, and was compliant with all the regulations on working conditions,” Ms. Bland said; still, teenage laborers lived in barrack-like dormitory accommodations and regularly worked 12-hour shifts.
The collapse of Rana Plaza in Bangladesh last April, causing more than 1,000 deaths, made addressing the issue seem even more urgent.
The daughter of two public schoolteachers, Ms. Bland was born in Washington. She attended the Savannah College of Art and Design and moved to Manhattan in 2003 to pursue a design career, before settling in Williamsburg two years later. She was quickly inspired by the flourishing creative entrepreneurialism there to set up her own label, Brooklyn Royalty, in 2006. “I had already grown tired of designing quality merchandise extolling the virtues of New York City, only to have it produced overseas,” she said. “But the reality is, it’s become almost impossible to produce a line here.”
Still, in what was then her day job at Ralph Lauren, “it seemed crazy to me that the only way to see the end product of my designs was to go into the store and buy it,” Ms. Bland said, adding that while there aren’t enough corporate jobs available to design-school graduates, “the vast majority of what we’re taught is geared toward us working for somebody else.” (She conceded that she had drawn many of her ideas from powerful conglomerates like Jones Group and LVMH, “who share vast resources among many brands, from marketing to sales, sourcing and production.”)
Business mentoring (“all the stuff you should have learned in fashion school and didn’t,” Ms. Bland said) will also be available to designers in the Manufacture New York stable, and she is planning to help arrange paid apprenticeships with designers like Nanette Lepore and Ralph Rucci who have expressed their support for the program.
Heather Blond, another designer who has joined Manufacture New York, said she had done so as much out of practicality as principle. “As an ‘emerging designer,’ my quantities are still very low, so I don’t get to take advantage of the low overseas prices,” she said. “Add on the freight and duty costs and producing in China isn’t cost-saving anymore.”
Ms. Bland said design talent was being vetted on experience over aesthetic. “They need to have at least established a brand, with some sales and a proven customer base,” she said. “That way they’ll have a strong enough foundation for us to build on and help them take it to the next level.”
But unlike the CFDA’s recently established incubator fund, which seems to be aimed at more established names, Manufacture New York is committed to providing support at a grass-roots level, she said, adding: “And if a more built-out designer comes to me wanting to reshore their product, I’m happy to help with that, too.”
Her staff of eight includes a chief operating officer and chief financial officer, Nelis Parts, a former adviser on mergers and acquisitions in the investment banking division of Goldman Sachs; and a director of designer relations, Seth Friedermann, previously the managing editor of ModaCycle, an online fashion magazine.
Their first crowd-financing effort was put on hold when Ms. Bland downed tools on the project to focus on helping Restore Red Hook after Hurricane Sandy (“I raised $5,000 making T-shirts,” she said), but an Indiegogo.com campaign has since netted more than $40,000.
A further $20,000 came from the fiscal sponsor Fractured Atlas, through which they are accepting tax-deductible donations, while the majority of these funds have been spent leasing and building out the space at Industry City. “We have been soliciting offers for donated production equipment since October last year,” Ms. Bland said. “As beautiful as shiny new equipment is, we also want to show that with proper maintenance, good industrial equipment lasts for decades.”
More recently, Ms. Bland has been soliciting grants from city officials. “We’re working closely with people like Congresswoman Nydia Velázquez,” she said. “Most of what we’re pursuing right now is 2014 money, but there’s a lot available for incubators and domestic manufacturing.”
A newly forged partnership with Johnny’s Fashion Studio on 38th Street, a sample development and apparel-manufacturing firm with a client list that includes He
lmu
t Lang, Theory and Alexander Wang, was another coup. “Johnny Kim has been in business in the garment center for 30 years, and shares our vision for educating independent designers and reshoring production in the United States,” she said. (Johnny’s currently outsources larger production runs to China, Vietnam and Korea.)
And two blocks south at the Pilot Program, business is bustling, if not yet exactly booming. “We staged a full runway show during Fashion Week, have been running classes and producing samples in-house,” Ms. Bland said proudly. And where there may still be a way to go before the project is complete, she said, “we’re used to working from the ground up, helping people as much as we can with the resources we’ve got.”
ABOUT MANUFACTURE NY
Manufacture New York is an innovative, inclusive fashion incubator and vertically-integrated facility startup that has opened a Pilot Program in the Garment Center. They are dedicated to providing emerging designers with the resources + skills to streamline their production process and transform local manufacturing into the most affordable, innovative option for all.
They are also a diverse community of 50+ creatives who are already sharing resources + working together to make this project a reality.
Their headquarters will include a fully-equipped sampling room, manufacturing facilities, classroom space (open to the public), private studios for rent and a state-of-the art computer lab complete with the industry’s latest software for design + production. They will also offer a dedicated area for experimentation with environmentally-friendly fabric washes, dyeing, finishes and special textile applications.
They cannot achieve this goal without community support, so please sign up for updates, donate to they cause.
Contact information:
23 WEST 36TH STREET
NEW YORK, NEW YORK 10018
Phone(917) 349-9155
Email: BOB@manufactureny.org
Website http://www.manufactureny.org
Facebook: https://www.facebook.com/manufactureny
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Twitter: https://twitter.com/ManufactureNY
Bringing Manufacturing Back To The U.S. via The Robot
in Uncategorized“Our people have really taken to Baxter,” said Allen. “He’s non-threatening. He’s helping them do their job.”
Baxter is designed to work safely alongside humans. Six facial expressions communicate status to human partners — a raised eyebrow signals confusion if something’s not right on the line. But most of time, Baxter works alone.
“And the best part I like is that Baxter doesn’t have a mouth,” said Allen. “So Baxter doesn’t talk.”
Slow but steady, Baxter toils on 24/7 without breaks or benefits. He costs only $22,000. And even with power and programming costs, Baxter is a $3-an-hour worker.
“He doesn’t necessarily replace anyone,” said Allen. “In fact, we need to hire skilled people to maintain and program those pieces of equipment. They just enable jobs to be performed more efficiently and therefore less expensively.”
Baxter is part of the new factory floor: a cutting-edge mix of people and technology that has helped to reduce production costs enough to bring manufacturing back from China.
“So we’re seeing now,” said Hal Sirkin of Boston Consulting Group, “is companies bring jobs back to the U.S. Not just because of patriotism but because of pure economics. The wages are rising in China, the U.S. is getting more competitive. The average American worker is at least 3 times as productive as the average Chinese worker.”
For Rodon and its sister company K’nex, that means 25 new jobs in three years. “We’re adding equipment, people and possibly breaking ground next door,” said Allen.
Sirkin said: “Had the automation not been put in place for a lot of these companies, we would have no jobs coming back to the U.S.”
Three to 5 million jobs are expected to be returning to the U.S. by the end of the decade.
Working Around The Skills Gap
in UncategorizedAnd that could mean bad news for what the center’s executive director Brad Finstad says could be considered the cornerstone of out-state Minnesota’s economy.
“Manufacturing is a key driver of greater Minnesota’s economy. Not only are the wages higher than other industries, but there is a tremendous ripple effect from manufacturing. Manufacturing induces more jobs than any other industry,” Finstad said.
“Training tomorrow’s workers will be critical to making sure Minnesota has the skilled workers manufacturers need. It’s especially important to continue the efforts of the Minnesota State Colleges and Universities campuses and other organizations working with manufacturers to identify their needs and develop specialized programs,” Finstad said.
New reports say Minnesota suffers a skills gap, which has made it hard for employers to find new, skilled workers.
A recently published national study, “Help Wanted,” puts Minnesota near the top in the portion of its jobs that require a post-secondary education — 70 percent of jobs require the extra training. The study also suggests that Minnesota residents will fall short.
Read the entire story here: http://www.southernminn.com/st_peter_herald/news/article_80ad29eb-b171-5d6c-ae69-2a5d015e0a04.html?mode=story