The trend hasn’t been as crushing in the Washington region as in Rust Belt cities such as Detroit and Youngstown, Ohio, because manufacturing is one of the smaller slices of this area’s economy. Still, the trajectory for manufacturing jobs here hasn’t been much different from national trends: The industry shed 20,000 jobs in this region between 2003 and 2013, a 27 percent decrease.
But despite the losses, there are still nearly 50,000 people employed locally in manufacturing jobs, a sign that some companies in this sector are still finding reasons to make their products stateside.
For these businesses, making things in America — in the Washington area, specifically — is still a viable model, even if it brings with it some tough challenges. Here’s a look at three firms that are keeping their manufacturing jobs here and why they’re finding that to be good business.
Sundog Productions
Fairfax-based manufacturer of T-shirts and other garments. Cas Shiver started his T-shirt business in 1986 in his parents’ garage.
Thanks in part to a big boost from a 1991 contract with Ralph Lauren to produce 80,000 T-shirts and other apparel, Sundog Productions grew from a small tie-dye shop to a bustling garment-making operation that includes cutting, sewing, dyeing, embroidering and printing.
As Sundog expanded, Shiver worked to keep in Virginia the kinds of jobs that many other manufacturers had outsourced. Unsurprisingly, he repeatedly missed out on business opportunities by sticking to that principle.
“I fell on my sword all throughout the ’90s with ‘made in America,’ and nobody cared,” Shiver said.
Prospective customers would tell him, “We want what you do, but it’s too expensive.” And so Shiver kept his operation in Fairfax, but in 2004 he opened a second facility in Amatitlan, Guatemala. Wages were lower there — his workers made the equivalent of $12 a day — and so he was able to slash prices on products made in that location. By contrast, his hourly workers in Virginia are paid anywhere from $7.50 to $18 per hour, and most employees in the dyeing area make between $15 to $25 an hour.
“In going down to Guatemala, we were able to accept orders from the big boys,” Shiver said, including major global retailers such as Kohl’s, Kmart and Wal-Mart.
He maintained the dual operations for several years, but eventually nature forced a reassessment of that strategy. A punishing tropical storm flooded the Guatemala factory in 2010, and Shiver opted not to rebuild it. He found it difficult to keep an eye on two facilities, and he said the business model for the Guatemala plant was thorny.
“The reality was it was feast or famine. You get an order from Kohl’s, it’ll keep you busy for a month,” Shiver said. But then there might be lulls in between massive orders, a problem he didn’t have stateside where he has smaller orders.
And business challenges aside, the Guatemala venture never quite jibed with Shiver’s belief in the importance of “made in America” products.
Now, Shiver focuses on Sundog’s Fairfax operations. The company relocated in June to a renovated 40,000 square-foot facility on Jermantown Road that is larger than its previous outpost and capable of greater output.
The factory ships 1.2 million units a year to customers such as Disney, Universal Studios, Crayola and Joe’s Crab Shack. Sundog can no longer give mega-retailers the low prices they demand, though, so it doesn’t contract with those companies.
Shiver said it can be difficult to find the workers he needs in this region.
“The middle classes are grooming their children to be somebody bigger and better … Nobody was groomed to say, ‘I want to be a sewer on my production floor. And that’s what I want to do.’ But I need people to be able to do that,” Shiver said.
Still, he sees advantages in his current set-up. Shiver said Fairfax city officials helped move his renovation along at a speedy pace. The project took about 14 months; he estimates in another jurisdiction, it might have taken several years. Virginia also gave Sundog a $53,000 grant for a solar heating system for its water, which has been helping the company conserve resources.
Shiver said he believes his business’s unique capabilities give him a leg up on competition: Because Sundog does so many steps of the garment-making process under one roof, the company can offer its customers a way to reduce their shipping costs and carbon footprint.
In its vast new space, Sundog has room to grow.
“The factory you see here actually can come close to tripling in production,” Shiver said. “The big issue is demand.”
Patton Electronics
Gaithersburg-based manufacturer of wireless routers, ethernet extenders and other electronic products.
More than 70 percent of Patton Electronics’ products are shipped to customers outside the United States. And yet the maker of wireless routers, ethernet extenders and voice-over-IP technology has not moved any of its manufacturing positions away from its headquarters in Gaithersburg.
Robert Patton, the firm’s president and chief executive, said part of his strategy is the simple belief that it’s the patriotic thing to do.
“We want to keep the jobs here because we believe it’s the best thing for our country,” Patton said.
But he has other reasons, too, for staying in Gaithersburg. For one, he doesn’t think that the set-up of many overseas factories is a good fit for his business. That’s because Patton products are often highly customized: Some go out under different brand names, and thus Patton needs to be able to easily change the product labeling and packaging. Patton said that level of customization is not something he believes can be easily managed at an overseas facility.
Patton also said he’s found that many international manufacturing outposts want to be paid up front and prefer to receive orders for a large quantity of items.
“That inventory carrying cost can really be a killer on your balance sheet,” Patton said.
These challenges have led Patton to conclude it makes more sense to keep production in Maryland. Plus, Gaithersburg has the advantage of being near the federal government, one of the company’s key customers.
Patrick M. Dewar is taking on his newest challenge: growing the company’s international business as U.S. government spending shrinks.
Still, Patton said there are some drawbacks to staying here. One is the lack of business partners that have exper
tis
e in the needs of the manufacturing industry.
“There are just not many accountants that understand manufacturing, there aren’t many banks that understand manufacturing and exporting,” Patton said. “All of the professional services that go along with a business like ours, they’re just not as well entrenched in the space.”
Micron
Manassas-based manufacturer of semiconductors.
Micron’s sprawling semiconductor factory in Manassas is just one of the company’s dozens of high-tech facilities across the globe. The plant produces the memory that is crucial to the functionality of many of our gadgets, from USB drives and smartphones to televisions and automobiles.
Micron has worked in the past decade to automate much of the activity in its clean room. Instead of having workers carry a product from one step to another of the assembly process, a robotic system now makes those transfers.
This transformation helped improve productivity by about 60 percent, and yet it has not led to a reduction in Micron’s Manassas-based workforce. In fact, the plant has added employees.
“We actually ended up requiring different skill sets,” said Raj Narasimhan, the site director.
Narasimhan said the changes have meant the company’s entry-level workers need to have a higher level of analytical reasoning and deduction. In order to get employees up to speed, the company partnered with Northern Virginia Community College to offer classes that were scheduled around Micron’s shifts. Some 350 workers went through the training.
Because many of Micron’s jobs now demand strong technical skills, Narasimhan said their nearness to NVCC and other universities has provided a valuable pipeline of talented workers.
“In Virginia, it’s pretty impressive the amount of talent that we have, engineering and technicians talent,” Narasimhan said.
That Micron is the only semiconductor factory in the region has both upsides and downsides: It doesn’t face direct competition for attracting and recruiting employees.
But, “when it comes to vendors that we buy equipment from, given that we’re the only one, essentially, in an eight-hour drive up north that does this kind of work, the support from them is hard to get,” Narasimhan said.
Micron also said it has remained in this region because of its relationship with the city of Manassas. Micron uses more than 50 percent of all the electricity in the city, an expenditure that costs the company close to $25 million per year. By simply keeping those rates competitive, Narasimhan said Manassas has been an important supporter of the business.
“Even if the rate is down by a cent, it makes a big difference,” Narasimhan said.
Government Extends Review of Smithfield Sale to Chinese Firm
in UncategorizedThe companies submitted the deal in June to the Committee on Foreign Investment in the United States, or CFIUS, an executive branch panel that examines foreign investment for potential threats to national security.
Many deals are approved during an initial 30-day review, but some transactions are given a second 45-day examination.
“Smithfield and Shuanghui International remain committed to working cooperatively with CFIUS throughout the process,” Smithfield said in the statement confirming it had been notified of the panel’s plan for an extended review.
“The CFIUS process is confidential and Smithfield and Shuanghui International do not intend to comment further on that process while it is ongoing. Smithfield and Shuanghui International continue to expect the transaction to close in the second half of 2013,” the company added.
Why Social Sustainability Should Be Part Of Every Business
in UncategorizedI can’t think of anything that illustrates the human cost of doing business more than the tragedy this past April in Bangladesh. More than 1,100 men, women, and children died when the Rana Plaza building, which housed a number of garment factories, collapsed. Most were garment workers who were ordered by supervisors to report to work, even after inspectors deemed the building unsafe.
Millions of people around the world work in dangerous and unhealthy conditions, earning a nominal income to deliver the products we consume. While the factory collapse in Bangladesh is a terrible tragedy, it’s another wake-up call that business leaders need. We can no longer ignore the human side of our global supply chains. Now is the time for all of us to recognize and embrace social sustainability–much in the same way we’ve focused on environmental sustainability for the past 20 years–as a mission-critical way of doing business. By social sustainability, I mean investing in the livelihoods of farm and factory laborers, ending worker exploitation, and ensuring that there is ethical sourcing behind the things we buy.
Here are three key points that every business leader should keep top-of-mind:
SOCIAL SUSTAINABILITY MITIGATES RISK
Simply put, ignoring social sustainability is a liability–to both your brand and product quality–that businesses can no longer afford.
Case in point: apparel companies, especially those that had previously outsourced their manufacturing to Bangladesh, began scrambling for PR cover within days of the Rana Plaza collapse. Earlier factory tragedies involving global corporations resurfaced as well, demonstrating the prominence of these issues in the eyes of the media and consumers.
Similarly, businesses risk product quality by ignoring the social side of sustainability. In the last month alone, the FDA issued recalls or safety alerts regarding food products tainted by salmonella, listeria and hepatitis A–contaminations that typically start in the fields where farm workers could be more vigilant if they were trained and empowered to do so. Not only do these outbreaks create a serious threat to public health, they can also cost food manufacturers millions of dollars to remedy each incidence of food-borne illness.
CONSUMERS WANT SOCIALLY SUSTAINABLE PRODUCTS
We’re seeing the rise of the conscious consumer–people who are informed and engaged, and who care about the environmental and social impact of the products they buy.
Businesses are responding. West Elm, for example, is partnering with Craftmark, an organization that is part of the All India Artisans and Craftworkers Welfare Association, to bring locally sourced and handmade products to consumer markets around the world. Many rug importers and exporters are looking for products free of child labor, and they work with organizations like GoodWeave for quality control. And with some companies, like prAna, customers show support by looking for the Fair Trade Certified label on their clothing offerings.
SOCIAL SUSTAINABILITY HAS NEVER BEEN EASIER
The good news is that social sustainability has never been easier to practice. There is no lack of information, and no shortage of partners who can help you develop, implement and audit a business model that gets it right:
The Fair Labor Association conducted an in-depth investigation of factories in China operated by Foxconn, Apple’s biggest supplier. Both Apple and Foxconn have agreed to follow FLA guidelines to reduce working hours, protect pay, and improve working conditions.
United Farm Workers, Oxfam America, and Costco, in collaboration with many other organizations, have lent considerable muscle to develop and support the Equitable Food Initiative. One of the initial projects had California strawberry growers commit to training their workers and paying them higher wages as an incentive to practice a higher standard of food safety.
Green Mountain Coffee Roasters recently completed a two-year partnership with Fair Trade USA and USAID to educate small-scale coffee farmers in Brazil about environmental conservation and effective natural resource management.
By putting people back into business, we’re choosing a world where farmers and workers are able to fight poverty through better trading practices, work in safe conditions, and have access to adequate schooling, health care, and housing. When this happens on a large scale, social sustainability will no longer just be “good business,” it’ll be business as usual.
WHY YOU SHOULD BUY AMERICAN-MADE
in UncategorizedWelcome to Green Style, a series that shows you how to make your wardrobe more environmentally friendly — all without sacrificing your personal look.
Read more: Why You Should Buy American-Made – Best Environmentally Friendly Fashion Tips for Men – Esquire
Follow us: @Esquiremag on Twitter | Esquire on Facebook
Visit us at Esquire.com
Expansion Management: The Myth of Globalization
in UncategorizedFor the first time in memory, I’m hearing manufacturing people sound optimistic about facilities they want to build not just in Asia but also in the United States.
I feel it is time to rethink globalization.
Five years after the near-collapse of the world’s largest economies, with Europe in crisis, the United States economy stalled, and China continuing its ascent as a growing economic power, it seems fair to ask, “Was Thomas Friedman correct in so heartily embracing the process of ‘flattening the world’ and convincing executives to lead, follow or get out of the way?”
Read the rest of the article at Industry Week: http://www.industryweek.com/expansion-management/expansion-management-myth-globalization
Strong Support for Labeling Modified Foods
in Food ProductsAmericans overwhelmingly support labeling foods that have been genetically modified or engineered, according to a New York Times poll conducted this year, with 93 percent of respondents saying that foods containing such ingredients should be identified.
Thirty-seven percent of those worried about G.M.O.’s said they feared that such foods cause cancer or allergies, although scientific studies continue to show that there is no added risk.
Among those with concerns, 26 percent said these foods are not safe to eat, or are toxic, while 13 percent were worried about environmental problems that they fear might be caused by genetic engineering.
Nearly half of Americans said they were aware that a large amount of the processed or packaged foods they now buy at the grocery store contains genetically modified ingredients. And although just a handful of G.M.O. crops are on the market, about 4 in 10 respondents said they thought that most or a lot of their fruits and vegetables were genetically modified.
Overall concern was higher among women than men, perhaps not surprisingly, as more women identify themselves as the principal grocery shopper in the household.
Americans were almost equally divided about eating genetically modified vegetables, fruits and grains, with about half saying they would not eat them.
They were even less comfortable about eating meat from genetically engineered animals: three-quarters said they would not eat G.M.O. fish, and about two-thirds said they would not eat meat that had been modified.
The national telephone poll was conducted from Jan. 24 to 27 with 1,052 adults and has a margin of sampling error of plus or minus three percentage points.
Lucky Brand Jeans Goes American-Made
in UncategorizedUntil 2010, most of Lucky Brand’s jeans were made in the U.S. But after that, the company switched to manufacturing the vast majority of its goods in countries including China, Indonesia, and Mexico. Now, with parent company Fifth & Pacific reportedly in the final stages of selling the brand to private-equity firm Advent International, Lucky Brand announced it’s getting back into the made-in-America game.
C.E.O. David DeMattei invoked sweatshops, patriotism, and environmental concerns when asked by Women’s Wear Daily why Americans are responding to American-made products now:
Hey Manufacturers: What If Manufacturing Came Back To America?
in UncategorizedWhat would you do if all the manufacturing work lost to low-cost countries came back overnight?
These questions may seem like imagining what you’d do If you won the lottery – fun for a minute, and ultimately not very useful. But they’re legitimate questions for any manufacturer that’s experienced losing work based on price to ask himself and his organization. And I’ll go so far as to say this is a valuable exercise for any small or medium sized manufacturer.
There have been several reports in the recent past that show buyers of manufactured goods – including discrete parts – have taken to “on-shoring” to offset ancillary costs in the face of the global economic downturn, volatile fuel/transportation markets and quality issues.
I read a column a while back called “Emotional Homecoming” by Pete Zelinski at Modern Machine Shop that got me to thinking about those kinds of questions – because his sentiment toward on-shoring is the same as mine. On the one hand, I’m hopeful that this trend continues and grows. The U.S. belongs in the center of the competitive global manufacturing marketplace.
But wishful thinking doesn’t make it so. I’m pragmatic about the selection of low-cost alternatives to improve profits within a supply chain. The global supply chain genie is out of its bottle, and too many opportunities exist these days for your customers and prospects not to consider improving their bottom lines.
Also in Pete’s column, I found references to other articles that in turn led me to a report from the American Small Manufacturers Coalition (ASMC) titled “The Next Generation Manufacturing National Survey.” The ASMC interviewed over 2,500 small and medium sized manufacturers from 18 U.S. states to determine their “health” in 6 areas or strategies.
The categories ASMC defined as Next Generation Manufacturing enablers include “Customer Focused Innovation,” “Human Capital Development and Retention,” “Superior Process Innovation,” and “Global Engagement.” The study is interesting for many reasons, but I was struck by the disparity between small and large manufacturers when it comes to valuing these strategies.
In every case, small manufacturers showed a strong reluctance to embrace these initiatives. It’s as though they’re skeptical of change, which to me is what I find most troubling and why I’m asking these questions.
Add to this equation that the U.S. is still the number 1 manufacturing economy of choice in the world for technically advanced and superior products. The reluctance of small manufacturers to pursue new technically advanced markets and processes suggests that whatever work does return, it may not be sustainable if value isn’t established and maintained to make it less likely the work will leave again.
The point is, it doesn’t matter if the work comes back or not. What’s important is to set our companies up to win and sustain business in a global supply chain that is reinventing itself and redefining what value is.
In the end, many products that were once of a value that would sustain higher functioning businesses and standards of living are no longer. We must be asking ourselves the right questions so that we can attract more of the work that will sustain us and establish our value to the world.
Change is hard, but asking the right questions can be the catalyst for capitalizing on that change and attracting work back from customers whose expectations have changed.
Written by: Mitch Free, Contributor
I have a unique bird’s eye view of the manufacturing economy.
Google's Moto X: Difference Between Made In America And Assembled In America
in UncategorizedAn interesting little point made in passing at The Verge is this about Google‘s upcoming Moto X. There’s a rather large difference between “Made in America” and “assembled in America”. And it’s also true that given the difference between those two the least valuable part of the process is the “assembled” part. It might still be true that Google will attract buyers as a result of the assembly in the Good Ol’ US, but it really isn’t where the value add is nor where the good wages are.
What is the standard for a product to be called Made in USA without qualification?
This might be a nice addition to employment possibilities in America but it’s really not the return of high paid manufacturing work, not at all.
Bipartisan PA. Caucus Forms to Promote Manufacturing
in UncategorizedBut on one important subject — how to promote manufacturing in Pennsylvania — there is cooperation, both politically and geographically.
The group has two co-chairmen: Rep. Eli Evankovich, a Westmoreland County Republican, and Rep. John Galloway, a Democrat from Bucks County, which is just north of Philadelphia.
“If we are going to move our state forward economically, manufacturers must want to move into Pennsylvania and those who are here must want to stay here,” said Mr. Evankovich, who worked for U.S. Steel for several years before entering politics.
Read more: http://bit.ly/15kuSxx
Made in the USA: Bringing manufacturing back to America
in UncategorizedBy CONGRESSMAN MIKE FITZPATRICK
As our nation’s economy begins to recover, it is imperative that the United States bring manufacturing jobs back to America. This goal has been at the top of my agenda, And so I was pleased to read the series published in the Courier Times and Intelligencer: “Made in the USA.”
The series highlighted local, small businesses and the importance of domestic manufacturing and its impact on manufacturers’ bottom line, their employees, customers, and communities.
The personal stories and information conveyed in the series lines up with much of what I heard during visits to 100 local businesses and manufacturers in 100 days, some reported in your newspapers. I had a unique opportunity to meet with business owners and their employees and learned how they are dealing, in this economy, with the challenge of growth and jobs and how important it is that we work together to address their issues. As a result of that experience and information gathered over the past few years, I developed a plan, similar in name to your series, to help revitalize the American manufacturing sector, which we all agree is key to our economic recovery. (Manufacturing has the highest multiplier effect of any sector in our economy.)
According to my revitalization plan, “Made in America,” stands for quality, value, and ingenuity — all important to industry, and ones clearly conveyed through the newspaper’s “Made in the USA” series. Without a doubt, the role of government is important. To bring manufacturing back to America, we must promote a variety of federal and national initiatives: lowering taxes and promoting certainty to encourage businesses to remain in the United States, reining in overreaching ineffective and onerous federal regulation to help businesses grow, engaging in “Buy American” and other pro-growth initiatives, and encouraging workforce development.
In Congress I’ve supported countless bills that empower small businesses and manufacturers, some of which resulted from my meetings with business owners, manufacturers and workers in Bucks and Montgomery counties.
Equally important to building an economy in which manufacturing thrives, is providing them with a skilled workforce. You may have heard there are “jobs,” but not enough workers trained to fill them. This is more important since manufacturing supports an estimated 17.2 million jobs in the United States — about one in six private sector jobs. And nearly 12 million Americans — or 9 percent of the workforce — are employed directly in manufacturing.
Your series also highlighted the importance of connecting high school students, young adults, returning military veterans and those pursuing a second career, to new educational and training resources. Ultimately, it is the skilled and trained individuals who will claim the family sustaining jobs in a broadened manufacturing base.
Today, there are not enough institutions training young people to participate in the high-skill manufacturing sector, even though the National Association of Colleges and Employers reports that the higher paying entry level jobs go to those with industrial and manufacturing degrees. Therefore, we must direct our attention to making sure manufacturers have access to a skilled workforce by encouraging and supporting technical and scientific education.
Long ago, American ingenuity, innovation and an acknowledged productive workforce established the United States as the No. 1 manufacturing country. Now, I would like to see us, once again, be a world leader and the best place in the world to manufacture.
While the history of the 8th District describes the Bucks-Montgomery region as business friendly, we can continue to build on that reputation as we focus on the elements that will bring about a manufacturing resurgence in the region and the nation. Again, much of what we need to accomplish requires cooperation between the public and private sectors, workforce development and public education — and thank you for your attention to the latter. I commend the newspaper on the series and trust you will continue to provide your readers with important public service stories, such as “Made in America.”
Congressman Mike Fitzpatrick is serving his third term in the U.S. House of Representatives. He represents Pennsylvania’s 8th District, which includes Bucks County and a portion of Montgomery County.
Things are ‘Made in the USA’ Again
in UncategorizedActually, the same things that have always been made in the USA. Things like Tervis tumblers, Unionwear apparel and Fiestaware. Better yet, a whole new crop of newer businesses are growing based on the fact that every product they sell is manufactured right here in the United States, CNBC reports. Most of the newer businesses are for boutique products made and marketed locally, such as a beard care line based in Nashville and a dog biscuit brand out of San Luis Obispo, but old standards like Unionwear are still going strong. In fact, Unionwear owner Mitch Cahn told NBC news that he has had a whole host of new customers calling him.
The fact that more consumers are seeking out American-made products in greater numbers is a good thing for business owners like you. It shows that consumers are willing to pay a little bit more for the knowledge that their products were made here in the USA. That means that they will be willing to pay a little bit more for your products and services – as long as you capitalize on the fact that your products were made here.
Read more at http://www.business2community.com/branding/things-are-made-in-the-usa-again-0556996#R3RjXQgzseHLgqEb.99
Entrepreneur Clears Hurdles to a "Made in USA” Label
in UncategorizedThe labels on every kind of fabric-based product in your home offer evidence that running a textile business in the U.S. in 2013 is not common. Lotuff says market forces ultimately pushed manufacturing for his first company offshore (he sold Berkshire in 2006), and it wasn’t easy to establish a new business offering an American-made product.
But he was determined to offer consumers a way “to buy American again” when it comes to baby blankets, bedding, and throws. So he invested his own capital and found a few workarounds.
Read more by Adrienne Burke at:
http://smallbusiness.yahoo.com/advisor/blogs/profit-minded/entrepreneur-clears-hurdles-made-usa-label-215106786.html
Made Where? Cattle Producers Want To Get Rid of New Meat Labels
in UncategorizedWASHINGTON — After surviving years of drought and watching the size of the U.S. cattle herd fall to its lowest level in more than 60 years, Texas cattleman Bob McCan would just as soon steer clear of the U.S. government’s latest meat-labeling rules.
But with his herd of roughly 4,000 including cattle from Mexico, McCan said there’s no good reason to segregate the animals when he sells them. All it would do, he said, is create hundreds of millions of dollars of extra handling costs that would get passed on, driving up the price at grocery stores.
“We don’t want beef to become a luxury item,” said McCan, a fifth-generation rancher from Victoria, Texas.
McCan, now the president-elect of the National Cattlemen’s Beef Association, is among a group of cattle producers and meat companies that has sued the U.S. Department of Agriculture for moving ahead in late May with new country-of-origin labeling rules.
In a lawsuit filed July 8 in U.S. District Court in Washington, the groups claim the labels will hurt beef exports and are unconstitutional as “compelled speech” that doesn’t advance a government interest.
Backers of the new rules, who say labeling can be done at a minimal cost, are braced for another battle with cattle producers.
“They’re totally wrong – consumers have the right to know where products are from,” said Joel Joseph, chairman of the Los Angeles-based Made in the USA Foundation, a group that promotes labeling and products manufactured in the United States. “It’s not forced speech. It’s just consumer information, the same kind of information that’s on a label of a new car that says where an engine’s from.”
He offered some advice for McCan: “If he doesn’t want to segregate his cattle, then he shouldn’t get cattle from Mexico.”
McCan said labeling is a marketing issue that should be left to the private sector.
“We’re not anti-labeling at all,” he said. “We just kind of feel like the government doesn’t really need to be in our marketing system. It doesn’t have to be dictated to us.”
Cattle producers aren’t the only unhappy ones.
The new labeling rules also could ignite a trade war with Canada, which is threatening to retaliate. Last month, the Canadian government called the new rules a “protectionist policy” that discriminated against foreign competition. Ottawa said it might respond by imposing tariffs on a long list of products, including pork, fruits and vegetables, pasta, chocolate, cheese, office furniture and many more. The Canadian government fears that its beef exports to the United States would decline under the new rules, with U.S. retailers more likely to reject foreign meat.
Canadian officials immediately complained to the World Trade Organization, but they say it could take more than a year to resolve the case.
As a result, John Masswohl, director of government and international relations for the Canadian Cattlemen’s Association, called the new rules a tactic by the U.S. Agriculture Department “to buy themselves another year of discrimination.”
And he predicted that the threat of tariffs will quickly affect U.S. businesses.
“If the market thinks tariffs are coming, businesses make plans to adjust,” Masswohl said. “So my feeling is that if you are a producer of one of the products on that list, your banker might have some issues with your line of credit.”
The issue has become tortuous for the Agriculture Department, which last year got sued by labeling proponents who accused the government of dragging its feet on adopting new rules.
And for consumer groups, labeling has become the issue that never goes away, even though it wins strong backing in polls.
“I thought we were done with it, and all of a sudden it’s still going on,” said Chris Waldrop, director of the Food Policy Institute at the Consumer Federation of America.
But he said industry groups have opposed country-of-origin labeling since it first appeared in Congress’ farm bill more than a decade ago.
“They’ve been trying to delay it ever since,” Waldrop said. “This is just another effort to do that, but the public is not on their side on this. . . . Consumers want more and more information about where their food comes from and how it’s grown, and not less.”
He cited a poll released by the Consumer Federation in May, which found that 90 percent of Americans back mandatory labeling of meat products.
McCan is not convinced.
“They might say they care, but most of them really don’t care what country it comes from. Beef is beef,” he said.
Masswohl said polls are misleading, adding that if consumers are asked only whether they’d like to know the origin of their food, “you’d be hard-pressed to find one who would say ‘no.’” But he said consumers put a higher value on price when they understand that labeling could result in a higher grocery bill. He estimated that the new U.S. rules would cost Canadian cattle producers from $90 to $100 per animal.
Canada and Mexico filed complaints against the U.S. with the World Trade Organization after an expanded labeling law took effect in 2009, alleging that it constituted a barrier to trade. After reviewing the case, the WTO upheld the right of the United States to require labels but said their cost exceeded the benefit and that they were confusing to consumers.
That prompted the USDA to issue its new rules this spring, satisfying a deadline set by the WTO.
Under the new rules, the labels will provide more information, detailing what countries the animals were born in and where they were raised and slaughtered. Officials at the Agriculture Department and the Office of the U.S. Trade Representative said the federal government is satisfied that the new rules are legal and comply with the WTO’s concerns.
But critics say the new rules did nothing to end the discrimination, which they say will continue the forced segregation of animals.
“It’s absurd what they did, for them to suggest that they complied,” said Masswohl, whose group is one of eight that filed the lawsuit against the USDA.
Cattle producers say the new rules will be particularly onerous for ranchers and meat companies in border states such as Texas, the nation’s top beef-exporting state.
With his ranch just three hours from the Mexican border, McCan said he has long included cattle from Mexico in his business.
“They’ve been tested and treated for everything under the sun before they come across the river, so they’re clean animals and their health is good,” he said. “And usually they’re just ready to go when we get them. . . . There’s no safety concerns with those cattle coming in from Mexico. If anything, they’re even safer.”
But Joseph, whose Made in the USA Foundation urged the USDA to pass the new rules, said labeling is both a health and safety issue for American consumers, who put more faith in U.S. products.
“You’re getting a better product when you ge
t A
merican goods of any type,” he said. “And concerning food products, you’re getting a safer, cleaner product. Sanitation is better in the United States than it is in Mexico.”
McCan worries that a prolonged labeling spat could sour trade relations with Canada and Mexico. And they’re the top two destinations for U.S. beef exports, which declined by 12 percent worldwide in 2012, compared with the year before, according to the U.S. Meat Export Federation.
“The last thing we really need to be doing is creating some problems with them,” McCan said. “It’s gotten very political, unfortunately.”
By Rob Hotakainen — McClatchy Washington Bureau
Email: rhotakainen@mcclatchydc.com
Twitter: @HotakainenRob
Man of (Overpriced) Steel
in UncategorizedCash tolls at the Verrazano Bridge hit a whopping $15 last March. Apparently, that’s not high enough for Chuck Schumer.
Schumer may have nothing against motorists or taxpayers and would likely deny he wants to raise their expenses. But that would be the undeniable consequence if he succeeds in his shilling for steel unions.
In a letter sent last week to MTA chief Tom Prendergast, Schumer says China’s state subsidies, looser regulations and cheap currency give its steel companies “a significant competitive advantage.” For that reason, the MTA should “do everything in its power to avoid purchasing from these companies.”
China does indeed subsidize some of its industries, including steel, with its policies. But it’s not the MTA’s mission to create employment for American workers. The MTA’s job is to keep New York’s transportation system in good repair at good value for the people who pay for it: the taxpayers. And if China’s lighter regulatory hand gives its companies a competitive edge in this global economy, maybe Schumer should be looking to lower our regulatory burden.
The math is telling. According to the authority, going with US steel firms instead of the lower-priced Chinese would see the $34 million price tag expand fourfold — to $134 million. That’s a lot to ask of already beleaguered motorists and taxpayers.
Even worse, because US companies aren’t prepared to start work immediately, the MTA says, the bridge project would have to be delayed.
Clearly, the agency wants to promote US jobs if it can; it’s been working with industry officials to that end. That’s great: the more suppliers, the better. And if Americans can do the job as well as the Chinese, and for the same price or less, better still.
Meanwhile, it would be nice to see Schumer looking out for all his constituents in New York instead of limiting his advocacy to the special-interest labor big shots — who have no qualms about, uh, steeling taxpayer dollars.
Detroit Bankruptcy Could Hit Millions of Retirees
in UncategorizedDespite the uncertainties surrounding what’s expected to be a hard-fought legal battle, the outcome promises to inflict more pain on Detroit’s already-beleaguered residents, businesses, creditors, investors and city workers, whose pension plans may now be invalidated.
The case will also set a legal precedent that will be watched closely by other major cities across the country, which are struggling under the weight of years of accumulated debt and underfunded pensions covering millions of public-sector retirees.
Detroit is the largest U.S. city to file for bankruptcy and that puts the city on an uncertain course that could lead to laying off employees and selling assets, reports CNBC’s Brian Sullivan.
The bankruptcy filing follows a decades-long decline of a city that prospered through much of the last century as the capital of U.S. manufacturing. But as that industrial base has declined, so to have the city’s fortunes.
Detroit has endured booms and busts in the past. Even as the auto industry has roared back to life since the Great Recession, the economic recovery has left the Motor City in its rear-view mirror.
Though unemployment has fallen from a peak of nearly 28 percent in 2009, some 16.3 percent of Detroit workers are still without a paycheck. As a result, income tax revenues have fallen 30 percent in the last decade. Meanwhile, the national recovery in home prices has yet to spread to Detroit. Property taxes are 20 percent lower than 2008 levels.
“There’s no way Detroit can afford to service 140 square miles anymore,” said Scorsone. “So for parts of the city, if your streetlight’s out they’re not going to fix it. If your road has massive potholes, it’s going to turn it to gravel. It’s that stark.”
Many residents have responded by simply moving away. Once American’s fourth-largest city, Detroit’s population has fallen by a quarter since 2000. A shrinking population further erodes the tax base, intensifying the budget squeeze.
Union officials, who have vowed to fight any effort to reduce benefits to retirees and vested workers, claim the city has undermined the pension fund by outsourcing city services to workers who don’t pay into the system.
“As older people leave the workforce, the city has been privatizing those jobs instead of bringing people back in to pay into the fund,” said Ed McNeil, special assistant to the president of Michigan AFSCME Council 25, which represents city workers.
Chairman of the Detroit Blight Authority, Bill Pulte is looking to get rid of the dangerous homes in the depressed city of Detroit. He is working to stabilize the city and help fix the suffering public safety issues by decreasing the number of abandon buildings.
“If they went after that money, they could pay their debts,” said McNeil.
Investors holding Detroit’s bonds have already taken a hit as the steady erosion of the city’s finances has slashed the city’s credit rating to junk status. Last month, Kevyn Orr, a bankruptcy lawyer named to restructure Detroit’s debts, declared a “moratorium” on some interest payments.
In the days leading
up to
Thursday’s bankruptcy filing, Orr had been working with individual creditors to renegotiate those debts at dimes on the dollar.
That could help close the gaping financial hole in the short run. But inflicting too much pain on bondholders could have dire long-term consequences, according to Kim Rueben, a senior fellow at the Urban Institute who specializes in municipal finance
Detroit is asking a federal judge for permission to go into Chapter 9 bankruptcy protection, reports CNBC’s Scott Cohn.
Orr must now persuade a bankruptcy judge to invalidate the city’s pension contracts, freeing him to reduce payments to retirees. The unions’ lawyers will argue that pension and health benefits are protected by Michigan’s constitution, one of seven states that specifically ban cuts in retiree pension and benefit payments.
That’s why the case will be closely watched by states such as Illinois and California, which also have badly underfunded their pensions. If Detroit is allowed to cut payments to its retirees, city and state workers in those states and others could see their future benefits pared back.
Future public sector workers can all but count on lower retirement benefits, as many state and local governments scale back the kind of financial promises that sank Detroit. With retirees living longer, those promises have become too costly to make.
Medium-sized industrial cities across China could suffer the same fate as Detroit, which suffered a sharp economic decline as industry left the city, Sanjeev Sanyal, Global Strategist, Deutsche Bank told CNBC.
Automakers said they plan to standby the city.
“We believe a strong Detroit is critical for a strong Michigan and our industry. The city has a difficult job ahead, and we are optimistic that governmental leaders will be successful in strengthening the community,” said Jay Cooney, a Ford spokesman.
Chrysler said it “believes in the City of Detroit and its people. We not only continue to invest in the city and its residents by adding to our presence in Detroit, we also are committed to playing a positive role in its revitalization.”
The crisis is also being watched closely in the White House.
—By CNBC’s John W. Schoen. Follow him on Twitter @johnwschoen.
Is the U.S. the Next Low-Cost Manufacturing Country?
in UncategorizedNot only are American companies pulling back on their overseas production, but foreign businesses view the United States as an attractive alternative to producing at home. It could be that America is becoming a low-cost manufacturing destination.
Last year, Manufacturing Trends and News concluded that “changes in the economic environment are making homeshoring more and more attractive, with a number of manufacturers actively moving their offshore operations back to the home turf.”
But it’s not U.S. firms anymore. The U.S. is becoming an increasingly attractive location for foreign businesses to operate, largely due to the boom in shale gas production that is making energy costs lower.
“Shale gas has become a game-changer for the U.S. manufacturing renaissance,” Sath Rao, vice president of industrial automation and process control at market research firm and business consultant Frost & Sullivan, told IMT. “Abundant quantities and subdued prices are helping U.S. manufacturing fortunes.”
One thing that’s causing domestic companies, at least, to rethink their production locations is the “total cost of ownership,” or TCO. When taking into account the cost of quality, delivery, transportation, energy consumption, labor monitoring, carrying stock, freight, packaging, and all other aspects of production, instead of focusing only on labor costs, it might make more financial sense to keep production at home.
Energy costs are particularly important in the TCO equation. As Rao noted, “Energy-intensive industries, all the way from mini-steel plants to downstream chemicals, are witnessing interest [in reshoring] like never before…high-tech industries are also selectively looking at reshoring to the U.S.”
Caterpillar recently decided to build a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas, citing the location’s proximity to the company’s supply base, access to ports and other transportation, and the positive business climate in the state.
Iconic American companies like Apple and GE are homeshoring production as well. Forbes explains that the U.S. is currently “more attractive than China, Korea, India, and other low-cost regions where global manufacturers once rushed to move production.”
In fact, GE’s decision to shift some production from China to Kentucky resulted in a 20 percent lower sticker price for final products, higher quality, and reduced lead times from factory to warehouse.
Forbes identifies three major factors in this shift: Rising wages in China, which have increased 500 percent since 2000 and are expected to grow 18 percent annually for the foreseeable future; higher energy, transportation, and manufacturing costs; and increased labor productivity in the U.S., due to plant enhancements and a shift to higher-level manufacturing.
But it’s not just American companies who find advantages in bringing production back home. European companies tired of paying exorbitant energy costs are finding that it makes sense for them to shift production to the U.S.
Earlier this month, German chemicals manufacturer BASF announced plans for a wide-ranging expansion in the U.S., primarily because U.S. natural gas prices have fallen to a quarter of those in Europe.
The Washington Post noted that since 2009, “BASF has channeled more than $5.7 billion into new investments in North America, including a formic acid plant under construction in Louisiana.”
In 2007, natural gas in the U.S. cost 80 percent of what it did in Europe, but today that ratio stands at 25 percent. That’s significant enough for energy-intensive industries to make the move to America. Combined with American production staying at home instead of going overseas, it’s fueling a manufacturing boom in the U.S. In the chemicals manufacturing industry alone, companies are building plants worth an estimated $95 billion.
But, as Rao cautioned, “The question then is, will the U.S. manufacturing industry be lulled into using the same-old energy efficiency practices and technologies as they build for the future? We sure hope not.”
Bangladesh Pollution, Told in Colors and Smells
in UncategorizedSAVAR, Bangladesh — On the worst days, the toxic stench wafting through the Genda Government Primary School is almost suffocating. Teachers struggle to concentrate, as if they were choking on air. Students often become lightheaded and dizzy. A few boys fainted in late April. Another retched in class.
“Sometimes it is red,” said Tamanna Afrous, the school’s English teacher. “Or gray. Sometimes it is blue. It depends on the colors they are using in the factories.”
Nearly three months ago, the Rana Plaza factory building collapsed, killing more than 1,100 people, in a disaster that exposed the risks in the low-cost formula that has made Bangladesh the world’s second-leading clothing exporter, after China, and a favorite of companies like Walmart, J. C. Penney and H & M. That formula depends on paying the lowest wages in the world and, at some factories, spending a minimum on work conditions and safety.
But it also often means ignoring costly environmental regulations. Bangladesh’s garment and textile industries have contributed heavily to what experts describe as a water pollution disaster, especially in the large industrial areas of Dhaka, the capital. Many rice paddies are now inundated with toxic wastewater. Fish stocks are dying. And many smaller waterways are being filled with sand and garbage, as developers sell off plots for factories or housing.
Environmental damage usually trails rapid industrialization in developing countries. But Bangladesh is already one of the world’s most environmentally fragile places, densely populated yet braided by river systems, with a labyrinth of low-lying wetlands leading to the Bay of Bengal. Even as pollution threatens agriculture and public health, Bangladesh is acutely vulnerable to climate change, as rising sea levels and changing weather patterns could displace millions of people and sharply reduce crop yields.
Here in Savar, an industrial suburb of Dhaka and the site of the collapsed Rana Plaza building, some factories treat their wastewater, but many do not have treatment plants or chose not to operate them to save on utility costs. Many of Savar’s canals or wetlands are now effectively retention ponds of untreated industrial waste.
“Look, it’s not only in Savar,” said Mohammed Abdul Kader, who has been Savar’s mayor since his predecessor was suspended in the wake of the Rana Plaza disaster. “The whole country is suffering from pollution. In Savar, we have lots of coconut trees, but they don’t produce coconuts anymore. Industrial pollution is damaging our fish stocks, our fruit produce, our vegetables.”
Bangladesh has laws to protect the environment, a national environment ministry and new special courts for environmental cases. Yet pollution is rising, not falling, experts say, largely because of the political and economic power of industry.
Tanneries and pharmaceutical plants are part of the problem, but textile and garment factories, a mainstay of the economy and a crucial source of employment, have the most clout. When the environment ministry appointed a tough-minded official who levied fines against textile and dyeing factories, complaining owners eventually forced his transfer.
“Nobody in the country, at least at the government level, is thinking about sustainable development,” said Rizwana Hasan, a prominent environmental lawyer. “All of the natural resources have been severely degraded and depleted.”
Less than two miles from the site of Rana Plaza, the Genda primary school has a student body made up mostly of the children of garment workers. Golam Rabbi, 11, who is the top-ranked student in the third grade there, lives with his mother and two younger brothers in a single room. The boys use price tags collected from factory floors as makeshift playing cards.
“The school always smells,” Golam said. “Sometimes we can’t even eat there. It is making some kids sick. Sometimes my head spins. It is hard to concentrate.”
His family is still struggling to recover from the Rana Plaza collapse. His father, a security guard, was killed in the disaster, and his mother is trying to support her sons and keep the two oldest in school. The father had left school for work — as had the mother — and both parents believed education could provide their sons a better life.
“His main goal was to get his children educated,” Golam’s mother, Hasina Begum, said of her husband.
But the pollution has made it hard. Golam has fainted from the smell. “He has told me several times that he doesn’t want to study at the school,” his mother said. “When it is very hot, and the breeze brings in the bad smell, he can’t breathe properly. I tried to reassure him, saying that people are holding rallies. I don’t know why the pollution is still continuing, why they can’t stop it.”
Factories surround the school: within 300 yards are two garment factories, two dyeing operations, a textile mill, a brick factory and a pharmaceutical plant. At least 10 dyeing plants can be found in a slightly larger radius. An underground drainage channel dumps wastewater through a pipe into the canal behind the school.
Mohammed Abdul Ali, the school’s headmaster, said he had approached local factory owners, as well as Savar officials, trying to get the drainage pipe moved. Mothers of children at the school, including Golam’s mother, have held awareness workshops and rallies. Local environmentalists have also campaigned.
“We’ve never seen the owners take our appeals seriously,” Mr. Ali said. “Everything is going on as usual. They have a good relationship with the politicians. That is why they don’t care.”
On a recent rainy afternoon, the smell was overpowering as the school’s fifth graders gathered in a classroom. Asked how many had parents working in garment factories, 23 of the 34 students in the room raised their hands.
“Sometimes my head is spinning,” one student said of the smell. “Sometimes we feel like we need to vomit,” another said.
Barely 100 yards away, behind a battered metal gate, the Surma Garments factory was dyeing fabric in a shade of dark purple. Mahadi Hasan, a manager, offered a tour of the Effluent Treatment Plant, where wastewater is treated with chemicals in a series of concrete tubs. He called for a worker to bring beakers with “before” and “after” samples — only to be handed an “after” sample in which the water was light purple.
Asked about pollution at the nearby school, Mr. Hasan said his wastewater flowed in the opposite direction, though that would mean it flowed uphill. “There are some other factories around here,” he said. “The water might be from them.”
In February, environmental regulators fined Surma Garments and four other factories for illegally dumping pollution. Two years earlier, another factory near the school, Anlima Yarn Dyeing, was fined for dumping untreated waste, even though it had a functioning effluent treatment plant. Local news accounts said that Anlima Yarn had been operating withou
t a
n environmental clearance certificate for 23 years.
The inspections were part of a highly publicized antipollution enforcement campaign led by Munir Chowdhury, a senior official in the environment ministry. Mr. Chowdhury raided factories, often at night, finding that many were saving money by dumping waste without treating it. He imposed repeated fines until he was transferred this year to run the state dairy operation.
Mr. Kader, the acting mayor of Savar, said there was only so much a single official could do. “You should understand the reality in Bangladesh,” he said. “These people who are setting up industries and factories here are much more powerful than me. When a government minister calls me and tells me to give permission to someone to set up a factory in Savar, I can’t refuse.”
For global brands that buy clothing from Bangladeshi factories, pollution rarely gets the same attention as workplace conditions or fire safety. H &M has sponsored some environmental programs, but Bangladeshi environmentalists say global buyers have done far too little.
“The buyers totally understand the conditions of Bangladesh and they take advantage of it,” said Ms. Hasan, the environmental lawyer.
Why ‘Made in the U.S.A.’ is still a viable model for some local manufacturers
in UncategorizedIt’s been one of the most consequential changes to the U.S. labor market over the last several decades: Manufacturing jobs have disappeared as assembly lines have become increasingly automated and as companies find it is cheaper to make their goods overseas.
In 2003, nearly 15 million Americans were employed in manufacturing jobs, but that number had dipped below 12 million by 2013.
But despite the losses, there are still nearly 50,000 people employed locally in manufacturing jobs, a sign that some companies in this sector are still finding reasons to make their products stateside.
For these businesses, making things in America — in the Washington area, specifically — is still a viable model, even if it brings with it some tough challenges. Here’s a look at three firms that are keeping their manufacturing jobs here and why they’re finding that to be good business.
Sundog Productions
Fairfax-based manufacturer of T-shirts and other garments. Cas Shiver started his T-shirt business in 1986 in his parents’ garage.
Thanks in part to a big boost from a 1991 contract with Ralph Lauren to produce 80,000 T-shirts and other apparel, Sundog Productions grew from a small tie-dye shop to a bustling garment-making operation that includes cutting, sewing, dyeing, embroidering and printing.
As Sundog expanded, Shiver worked to keep in Virginia the kinds of jobs that many other manufacturers had outsourced. Unsurprisingly, he repeatedly missed out on business opportunities by sticking to that principle.
“I fell on my sword all throughout the ’90s with ‘made in America,’ and nobody cared,” Shiver said.
Prospective customers would tell him, “We want what you do, but it’s too expensive.” And so Shiver kept his operation in Fairfax, but in 2004 he opened a second facility in Amatitlan, Guatemala. Wages were lower there — his workers made the equivalent of $12 a day — and so he was able to slash prices on products made in that location. By contrast, his hourly workers in Virginia are paid anywhere from $7.50 to $18 per hour, and most employees in the dyeing area make between $15 to $25 an hour.
“In going down to Guatemala, we were able to accept orders from the big boys,” Shiver said, including major global retailers such as Kohl’s, Kmart and Wal-Mart.
He maintained the dual operations for several years, but eventually nature forced a reassessment of that strategy. A punishing tropical storm flooded the Guatemala factory in 2010, and Shiver opted not to rebuild it. He found it difficult to keep an eye on two facilities, and he said the business model for the Guatemala plant was thorny.
“The reality was it was feast or famine. You get an order from Kohl’s, it’ll keep you busy for a month,” Shiver said. But then there might be lulls in between massive orders, a problem he didn’t have stateside where he has smaller orders.
And business challenges aside, the Guatemala venture never quite jibed with Shiver’s belief in the importance of “made in America” products.
Now, Shiver focuses on Sundog’s Fairfax operations. The company relocated in June to a renovated 40,000 square-foot facility on Jermantown Road that is larger than its previous outpost and capable of greater output.
The factory ships 1.2 million units a year to customers such as Disney, Universal Studios, Crayola and Joe’s Crab Shack. Sundog can no longer give mega-retailers the low prices they demand, though, so it doesn’t contract with those companies.
Shiver said it can be difficult to find the workers he needs in this region.
“The middle classes are grooming their children to be somebody bigger and better … Nobody was groomed to say, ‘I want to be a sewer on my production floor. And that’s what I want to do.’ But I need people to be able to do that,” Shiver said.
Still, he sees advantages in his current set-up. Shiver said Fairfax city officials helped move his renovation along at a speedy pace. The project took about 14 months; he estimates in another jurisdiction, it might have taken several years. Virginia also gave Sundog a $53,000 grant for a solar heating system for its water, which has been helping the company conserve resources.
Shiver said he believes his business’s unique capabilities give him a leg up on competition: Because Sundog does so many steps of the garment-making process under one roof, the company can offer its customers a way to reduce their shipping costs and carbon footprint.
In its vast new space, Sundog has room to grow.
“The factory you see here actually can come close to tripling in production,” Shiver said. “The big issue is demand.”
Patton Electronics
Gaithersburg-based manufacturer of wireless routers, ethernet extenders and other electronic products.
More than 70 percent of Patton Electronics’ products are shipped to customers outside the United States. And yet the maker of wireless routers, ethernet extenders and voice-over-IP technology has not moved any of its manufacturing positions away from its headquarters in Gaithersburg.
Robert Patton, the firm’s president and chief executive, said part of his strategy is the simple belief that it’s the patriotic thing to do.
“We want to keep the jobs here because we believe it’s the best thing for our country,” Patton said.
But he has other reasons, too, for staying in Gaithersburg. For one, he doesn’t think that the set-up of many overseas factories is a good fit for his business. That’s because Patton products are often highly customized: Some go out under different brand names, and thus Patton needs to be able to easily change the product labeling and packaging. Patton said that level of customization is not something he believes can be easily managed at an overseas facility.
Patton also said he’s found that many international manufacturing outposts want to be paid up front and prefer to receive orders for a large quantity of items.
“That inventory carrying cost can really be a killer on your balance sheet,” Patton said.
These challenges have led Patton to conclude it makes more sense to keep production in Maryland. Plus, Gaithersburg has the advantage of being near the federal government, one of the company’s key customers.
Patrick M. Dewar is taking on his newest challenge: growing the company’s international business as U.S. government spending shrinks.
Still, Patton said there are some drawbacks to staying here. One is the lack of business partners that have exper
tis
e in the needs of the manufacturing industry.
“There are just not many accountants that understand manufacturing, there aren’t many banks that understand manufacturing and exporting,” Patton said. “All of the professional services that go along with a business like ours, they’re just not as well entrenched in the space.”
Micron
Manassas-based manufacturer of semiconductors.
Micron’s sprawling semiconductor factory in Manassas is just one of the company’s dozens of high-tech facilities across the globe. The plant produces the memory that is crucial to the functionality of many of our gadgets, from USB drives and smartphones to televisions and automobiles.
Micron has worked in the past decade to automate much of the activity in its clean room. Instead of having workers carry a product from one step to another of the assembly process, a robotic system now makes those transfers.
This transformation helped improve productivity by about 60 percent, and yet it has not led to a reduction in Micron’s Manassas-based workforce. In fact, the plant has added employees.
“We actually ended up requiring different skill sets,” said Raj Narasimhan, the site director.
Narasimhan said the changes have meant the company’s entry-level workers need to have a higher level of analytical reasoning and deduction. In order to get employees up to speed, the company partnered with Northern Virginia Community College to offer classes that were scheduled around Micron’s shifts. Some 350 workers went through the training.
Because many of Micron’s jobs now demand strong technical skills, Narasimhan said their nearness to NVCC and other universities has provided a valuable pipeline of talented workers.
“In Virginia, it’s pretty impressive the amount of talent that we have, engineering and technicians talent,” Narasimhan said.
That Micron is the only semiconductor factory in the region has both upsides and downsides: It doesn’t face direct competition for attracting and recruiting employees.
But, “when it comes to vendors that we buy equipment from, given that we’re the only one, essentially, in an eight-hour drive up north that does this kind of work, the support from them is hard to get,” Narasimhan said.
Micron also said it has remained in this region because of its relationship with the city of Manassas. Micron uses more than 50 percent of all the electricity in the city, an expenditure that costs the company close to $25 million per year. By simply keeping those rates competitive, Narasimhan said Manassas has been an important supporter of the business.
“Even if the rate is down by a cent, it makes a big difference,” Narasimhan said.
Why Manufacturing In The U.S. Is Personal
in UncategorizedWe addressed a variety of topics from the need to focus on high-growth industries in advanced manufacturing to re-shoring initiatives and the evolving manufacturing workforce. We also explored approaches to supporting entrepreneurs and small and medium-sized manufacturers, and promoting regional partnerships to build local ecosystems that create opportunities and enhance competitiveness.
I was delighted to have the opportunity to facilitate the discussion for several reasons. Chief among them is my very personal relationship with manufacturing.
I was born in Alliance, a Northeast Ohio town of about 22,000 with a rich industrial history. Both my grandfather and great-grandfather had worked at B.F. Goodrich in Akron fixing machines on the line. My father followed in their footsteps until he was 28, when he decided to become the first in the family to go to college. After he earned his engineering degree at The Ohio State University, we moved to Harrisburg, Pa., where my father worked for AMP. I vividly remember going to the plant as a kid and being fascinated by the machinery and production lines.
Now that I am back in Northeast Ohio, I see my two uncles, who own a pallet business and employ many of my family members, both thrive and struggle. They deal with issues many small to medium-sized companies face: handling workforce issues, understanding the regulatory environment, deciding on new markets, and occasionally facing big adversity. Last month a fire took out a large chunk of their capacity. They are back up and running but are having to make due as they rebuild. Like most manufacturers in the Midwest, they are a resilient bunch.
I know many of us that work in manufacturing, whether on a line, as a service provider or a policymaker have similar roots and stories to tell. We have a deep connection to the manufacturing economy and improving American competitiveness in this sector is personal for us. We love passing the industrial production sites as we enter into the heart of our cities.
Another example of this personal passion for making things here in America is quasar energy group, one of NorTech’s cluster companies that recycles energy in North America from organic wastes. Through all of its developments, quasar has made an effort to employ the local labor force and use U.S.-sourced technology and components. When quasar built its first digester, all of the components were sourced from Europe. Over the past six years, quasar has worked with Ohio’s existing manufacturing base to redesign and fabricate these components in Ohio, which has brought costs down significantly. Now 98 percent of the components quasar uses to build its facilities are sourced in the U.S. with more than 75 percent from Ohio.
quasar’s president, Mel Kurtz, describes it this way: “A decision to manufacture components necessary to succeed is not only exciting but liberating. The ability to change design based on experience is a big deal and doing it immediately often eliminates the traditional time gobbling associated with engineering related banter. In fact even our engineers will tell you “sometimes you need to just build it”! Making changes that improve performance can happen fast when you manage manufacturing and saving time is often more valuable than making money.”
I am proud that in my role at NorTech and through collaboration with our economic development partner MAGNET (Manufacturing Advocacy & Growth Network), we are able to not only impact the regulatory and market environment for manufacturers in Northeast Ohio, but work directly on specific projects. We do that through various programs and activities. Among them is the Partnership for Regional Innovation Services to Manufacturers (PRISM).
Manufacturing continues to be a critical part of the U.S. economic base, accounting for 11 percent of our national GDP and over 75 percent of export growth in recent years. We decided there needs to be an aggressive effort to increase the contributions of small and medium-sized manufacturers. In order to do this, the country needs to understand you can effectively manufacture in the U.S. and increase exports.
The discussions at the Clinton Global Initiative in Chicago confirmed that it takes this multilevel approach with all hands on deck to have a transformational impact. Many members of the Manufacturing Working Group called for streamlining a system of services to manufacturers and tailor these services for each customer. Effective services are particularly important as manufacturers explore new markets from both an international and industry perspective.
Made in the U.S.: Is America Making a Manufacturing Comeback?
in UncategorizedAs a trained industrial designer, part of my former job was to anticipate consumer needs — sometimes before consumers themselves even knew what they wanted. So in a way, I guess you could say I can see the future. In our near future, I see American-made products that are designed and manufactured here exploding, right along with consumer demand for them. Major companies such as Walmart are re-shoring and American entrepreneurship is growing in leaps and bounds thanks to more affordable tools, like laser cutting, 3-D printing and even robotics. It’s a great time to be a maker or entrepreneur.
According to a recent nationally representative survey by the Consumer Reports National Research Center, 78 percent of Americans that were given a choice between an identical product made in the U.S. and one made abroad, would rather buy the American product.
Why? Those surveyed cited the desire to retain American manufacturing jobs, concerns about using child workers or other cheap overseas labor, and lower quality goods. The recent Bangladesh factory collapse exposed pitiless working conditions to the consumer world that may not have known how bad conditions can be.
Maybe what organizations and retailers alike should be paying attention to is that more than 60 percent of all American respondents indicated they’d be willing to pay extra to buy American.
This research indicates that as consumers in 2013, we’re more inclined to know of and be informed about what’s behind our products and what kind of world they create. We’re willing to spend more when the goods we buy are aligned with our own values. We care about organic and fair trade products, locally produced products and socially and environmentally friendly products.
The demand is clear. The USDA reports farmer’s markets had a 17 percent increase from 2010 to 2011 and a 9.6 percent increase from 2011 to 2012. That’s not easy to do.
Reshoring Production
Corporations are paying attention too. We’re about to see a surge in large manufacturers returning production to the U.S. from offshore. According to Boston Consulting Group, 48 percent of the biggest firms with sales above $10 billion are planning to re-shore. Just two weeks ago we saw Lenovo open its first U.S assembly plant in North Carolina.
Other organizations are feeling a sense of corporate social responsibility towards the U.S. and the cities that house them too. Take Chrysler, for example, which emboldened its brand with what is arguably one of the Super Bowl’s most effective advertising spots: “Imported From Detroit.”
Tim Cook even spoke last December about moving Apple’s production of one of its existing Mac lines to the U.S. saying, “I don’t think we have a responsibility to create a certain kind of job, but I do think we do have a responsibility to create jobs.” Meanwhile, Apple’s new “Designed by Apple in California” TV ad campaign is shouting its American identity from the rooftops.
Garage Disruption
Perhaps most interesting is that it’s not just large organizations shifting toward the consumer demand for American-made products. If we use the United States Patent and Trademark Office as a hallmark for American ingenuity and innovation, we’ve had consecutive record years of the number of patents issued since 2010.
For better or worse, the 2007 down-turn in our economy left some jobless Americans with their own visions for innovation. At the same time, an explosion in affordable tools enabled this innovation at a micro level. We’re also seeing crowdfunding platforms like Indiegogo and Kickstarter bolster entrepreneurship like never before. Tech & Design projects on Kickstarter last year had over $79 million dollars pledged. Now that’s strong demand. With the means to see great ideas through to fruition, the next generation of great American companies is starting from the ground up.
As we celebrate the 237th birthday of the United States of America, let’s celebrate American products and the people behind these products. Let’s celebrate those who spend countless hours creating these products. Read product labels in the store, visit your local farmer’s market and check out The Grommet’s Made in the USA collection to see American entrepreneurship firsthand. I often tell people that if they start to buy just 10 percent of their gifts or products according to their values, they’ll be making a difference.
Consumer Sentiment in U.S. Unexpectedly Declined in July
in NewsThe recent increases in mortgage rates and prices at the gas pump may have restrained consumers’ views on the economy in the next six months. At the same time, the group’s gauge of current conditions jumped to a six-year high as stock prices approached a record after falling in the middle of June.
“It’s a slip in confidence from recent highs rather than the start of a new downward,” said Gennadiy Goldberg, a strategist at TD Securities Inc. in New York. “As we get later in the year and the economy improves, consumers will start to see better numbers and they’ll notice that.”
Forecasts of the 66 economists for sentiment in the Bloomberg survey ranged from 80 to 88. The index averaged 64.2 during the recession that ended in June 2009, and 89 in the five years prior.
The Michigan survey compares with the weekly Bloomberg Consumer Comfort Index, which climbed to minus 27.3 in the week ended July 7, the highest level in more than five years, from minus 27.5. The figures showed Americans were more upbeat about their finances than at any time since April 2008, while a gauge of the buying climate increased to a nine-week high.
Producer Prices
Other figures today showed prices paid to producers rose 0.8 percent in June, more than projected and the most since September.
The Michigan survey’s measure of current conditions, which takes stock of Americans’ views of their personal finance, increased to 99.7 in July from 93.8 at the end of last month.
The gauge of expectations six months from now fell to 73.8 from 77.8.
Mortgage rates this week climbed to the highest level in two years. The average 30-year fixed rate was 4.51 percent in the week ended yesterday, according to data from Freddie Mac. In November, it fell to a record low of 3.51 percent.
Gasoline prices have also increased this week. The average cost of a gallon of regular gas in the U.S. was $3.55 yesterday, up from $3.47 at the end of last week, according to figures from AAA, the nation’s largest motoring organization.
Job Growth
At the same time, job and income growth is helping drive consumer spending, which accounts for about 70 percent of the economy. Labor Department data last week showed employers added 195,000 workers for a second month in June. The figures also showed hourly earnings in the 12 months to June rose by the most since July 2011.
Retail sales rose 0.6 percent in May, the biggest increase in three months and propelled by a jump in motor vehicle purchases, Commerce Department figures showed last month.
Cars and light trucks sold at a 15.89 annualized rate in June, the strongest since November 2007, according to data from Ward’s Automotive Group.
General Motors Co. said June sales were up 6.5 percent from the same month last year, marking the Detroit-based company’s best sales month since September 2008.
“We’re in an economy that gets a little bit stronger each and every month,” said Kurt McNeil, vice president of U.S. sales and service, speaking during a July 2 earnings call. “The fact that the jobs data is finally trending positive, the stable fuel prices, consumer sentiment and confidence showing positive signs, we think that’s finally unlocking the American families coming in to our showrooms.”
Consumers surveyed for today’s confidence report expect an inflation rate of 3.3 percent over the next 12 months, up from the June forecast of 3 percent, today’s report showed. Over the next five years, Americans expect a 2.9 percent rate of inflation, matching the previous three months.
Crude Fluctuates as Manufacturing Expands
in Uncategorized“Crude’s been adjusting to the economic data,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The manufacturing number is more forward-looking. Retail sales are still pretty good, which is probably why crude didn’t sell off a lot. The data supports the notion of modest growth.”
WTI for August delivery fell 5 cents to $105.90 a barrel at 11:28 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 7.4 percent below the 100-day average for the time of day. The contract climbed $1.04 on July 12, capping a 13 percent rally over three weeks.
Brent for August settlement gained 19 cents to $109 a barrel on the London-based ICE Futures Europe exchange. Volume was 6.9 percent below 100-day average. Brent’s premium over WTI widened to as much as $3.43. The spread was $1.99 on July 10, the narrowest based on closing prices since November 2010.
July ManufacturingThe July manufacturing index was higher than last month’s 7.8. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 50 economists called for a reading of 5.
The June retail sales growth was slower than the 0.8 percent gain forecast by economists surveyed by Bloomberg. It followed a 0.5 percent increase in May that was less than previously reported, the Commerce Department said. Consumer spending is the biggest part of the economy.
“The retail sales number is not as good as expected,” said Bill Baruch, a senior market strategist at commodities trading firm Iitrader.com in Chicago. “It’s a bearish day for crude.”
Oil was supported by concern that tension in Egypt will disrupt Middle East exports.
Egypt DemonstrationsDemonstrations in Egypt, which may target military sites, are building on efforts by the Muslim Brotherhood to squeeze the army after it pushed Mursi from power on July 3 following a wave of protests against his rule. A combined 2.24 million barrels a day of oil were shipped from the Red Sea to Europe and North America in 2011 via the Suez Canal and the Suez-Mediterranean pipeline, Energy Department data show.
“Things are still messy in Egypt and that’s supportive for oil,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC.
Prices declined earlier as China’s economic growth slowed. Gross domestic product increased 7.5 percent in the second quarter as growth in factory output and fixed-asset investment weakened, the National Bureau of Statistics said.
China’s growth was the slowest in three quarters and extended the longest streak of sub-8 percent expansion in at least two decades.
The U.S. and China accounted for about a third of the world’s oil consumption in 2012, according to BP Plc’s Statistical Review of World Energy.
Chinese DemandOil consumption in China surged 11 percent from a year ago to about 10 million barrels a day last month, the statistics data showed.
Hedge funds increased bullish bets on WTI to the highest level since May 2011, the U.S. Commodity Futures Trading Commission said July 12. Money managers boosted their net-long positions on WTI, or wagers that prices will rise, by 6.9 percent to 281,918 futures and options combined in the seven days ended July 9, the CFTC said in its Commitments of Traders report.
Bullish bets on Brent outnumbered short positions by 176,988 lots, the ICE Futures Europe said.
Goldman Sachs Group Inc. said price risks for Brent crude in the second half of the year have changed “to the upside” amid production losses in some Organization of Petroleum Exporting Countries nations and political threats to supply.
Reductions in output from Libya, Iraq and Nigeria have the potential to limit availability, the bank said today in an e-mailed report.
Can the Future of Tech Truly Be Made in America?
in UncategorizedIt’s hard to say whether or not that supper directly yielded any meaningful results in terms of domestic job creation. It has, however, contributed to a broader renewed interest in bringing jobs back from overseas among tech heavyweights looking to earn some political goodwill, even as they carefully balance the cost-minimizing demands of investors.
Can the future of tech truly be made in America?
The Mac maker
Apple in particular has taken a majority of the criticism, largely due to its increasing scope of influence on the global economy. The Mac maker outsourced production to overseas manufacturing partners in the late ’90s under the direction of Tim Cook, who joined the company in 1998 as Apple flirted with bankruptcy and every dollar counted.
Steve Jobs made it clear that “those jobs aren’t coming back” because the U.S. has a smaller supply of mid-level industrial engineers relative to countries like China. That was then, but Tim Cook has since become CEO. Cook differs from his predecessor in many ways, including his willingness to bring some jobs back. The new Mac Pro, for example, will be assembled in the U.S.
Apple’s new marketing campaign that focuses on its brand also emphasizes its “Designed by Apple in California” signature. During his tax grilling, Cook reiterated numerous times how proud he was that 95% of Apple’s research and development takes place stateside, despite scrutiny over the IP rights that Apple shares with its Irish subsidiary.
The search giant
Google has also made similarly patriotic pushes. The search giant was originally planning to launch a Nexus Q streaming set-top box last year that was proudly manufactured in the U.S. The Nexus Q would be doomed, largely due to its high price and limited functionality, and Google discontinued it before retail launch. The domestic assembly inevitably added to the Nexus Q’s costs.
More recently, Google is about to launch its highly anticipated Moto X — its “iPhone killer,” as it were. The new device may launch as early as next month on Verizon Wireless. In preparation, Big G launched a new ad campaign — on July 4th weekend, no less — that proudly describes the device as “Designed by you. Assembled in the USA.”
The software bellwether
Microsoft hasn’t been overly concerned with the domestic assembly debate, though, seeing as how its forte has historically always been software. The company has never really had much meaningful presence in China with either customers (due to piracy) or suppliers.
That might change soon, though, as Microsoft increasingly looks to create its own first-party devices in the pursuit of becoming a devices-and-services company. Its Surface tablets are currently assembled by Taiwanese contract manufacturer Pegatron. Foxconn builds the Xbox 360. Pegatron and Foxconn are Apple’s two main manufacturers also.
At what cost?
It also depends on the definition of “Assembled in the USA.” In order for a company to earn that mark, the Federal Trade Commission requires:
The tech giants can bring some of these jobs back home to bolster the domestic economy in the name of patriotism, but they can’t bring them all back. It would just cost too much.
Manufacturing in New York Area Expands More Than Forecast
in UncategorizedSustained demand from stronger housing and auto sales is underpinning improvement in manufacturing, which accounts for about 12 percent of the economy. Stronger household balance sheets and inventory building by companies may help factories offset weaker global markets such as China and Europe.
“What you have is an uncertainty on general economics being largely balanced off by strength in two very, very critical sectors: housing and vehicles,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania said before the report.
Estimates in the Bloomberg survey ranged from 0.0 to 10.
Retail sales rose less than projected in June as demand cooled at building materials outlets and restaurants, underscoring a second-quarter slowdown in the U.S. economy, another report showed today.
Retail SalesThe 0.4 percent gain in purchases followed a 0.5 percent increase in May that was less than previously reported, according to Commerce Department figures. The median forecast of 82 economists surveyed by Bloomberg called for a 0.8 percent advance. Excluding the biggest jump in automobile purchases since November, sales were unchanged.
Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.3 percent to 1,680.19 at 8:45 a.m. in New York after data showed China’s economy grew as projected in the second quarter.
The Empire State gauge of new orders rose to 3.8 this month from minus 6.7 in June. A measure of shipments increased to 9 from minus 11.8, the lowest level in four years. A measure of factory employment improved to 3.3 from 0.
MSC Industrial Direct Co., a provider of office and industrial equipment, posted earnings and revenue that beat analysts’ estimates for the fiscal third quarter even as the company reported a weaker demand environment in the metalworking manufacturing sector.
‘Growing Confidence’“This isn’t 2008, 2009, but it’s very sluggish,” Erik Gershwind, chief executive officer of the Melville, New York-based company, said on a July 10 conference call, adding “discussions with supply chain executives at our key customers give me growing confidence that significant manufacturing growth is likely for North America over the next decade.”
Factory executives in the New York Fed region were more optimistic about the future in July than in the prior month. The gauge measuring the outlook six months from now climbed to 32, the highest since March, from 25.
“That’s a tremendously positive sign,” Naroff said. “They think that, even with rising interest rates, the economy has enough momentum to push through it.”
The majority of those polled this month, 65.2 percent, said they planned on making no or few changes to their workforces over the next year in response to the Affordable Care Act, according to results of a supplemental question.
Economists monitor the New York report and Philadelphia Fed factory readings, due Thursday, for clues about the Institute for Supply Management figures on U.S. manufacturing, scheduled for release Aug. 1.
U.S. Manufacturing Has a Promising Future, Says Consultant
in UncategorizedChina leveraged its low wages to create jobs. It built infrastructure and ports to accommodate businesses and clustered similar industries within its cities.
“China made sure manufacturers had everything they needed to succeed,” he said.
However, its success caused its economy to change quickly, he added.
In China’s Yangtze River Delta, for instance, workers were being paid average wages of 72 cents per hour in 2000. Those wages rose to $2.79 per hour by 2010. That growth in wages is expected to continue, he said.
Meantime, U.S. manufacturing has become more efficient, using fewer workers, meaning that many manufacturers are finding it less expensive to establish operations stateside.
“The threat from China is large,” he said. But he added, “the tide is turning in favor of U.S. companies.”
He also praised the BEAM initiative, which seeks to grow manufacturing through cooperation among leaders in Louisville and Lexington.
“BEAM is the prototype for what we need to do to make the economy work,” he said. “Bringing together areas is a very important thing. This is key to American competitiveness.”
Are Manufacturing Jobs Moving Back to The U.S.?
in ManufacturingReposted from VOXXI:
Is there a reverse in manufacturing trends? Late last year, Apple announced that it was moving part of its manufacturing back to the U.S. Many saw this as a PR stunt by the company, as it had suffered an blow to its image after the media looked into problems with Apple’s Chinese production partnership with Foxconn. Apple users were shocked to learn that the company’s iPhone was being built in a factory that violated workers’ rights.
Apple has dumped Foxconn for other reasons and is now manufacturing iPhones with a different company, also in China. The production of Mac minis, however, will now occur in the U.S. The move is generally seen only as symbolic because the company, which has $121 billion in cash, is only investing $1 million for its production facility in the U.S.
But Apple is not alone in insourcing — and it’s not because these companies want to win a PR battle or appease American consumers. It’s all about money.
The Manufacturing Jobs Giant
In the 1980s, it was Japan who became the manufacturing giant. We all feared the great rising sun of Japan; its economy was expanding at a dramatic rate, just like China’s is now. And just about every product in the U.S. had that ominous mark: Made in Japan. When Japan became too expensive, manufacturing moved to Mexico, Taiwan and Korea. Korea is still relatively cheap, but Korean companies have actually gone off shore to cheaper places like Guatemala and Haiti.
The International Labor Organization claims real wages in Asia between 2000 and 2008 rose by 7.1 – 7.8 percent per year. Continuing on this trend of rising real wages, the 2012 National Bureau of Statistics of China report estimated that wages in the urban areas of China experienced an increase of 17.1 percent in 2011. This trend is not good if you’re looking to hire workers in Asia to build something for you. But there are other problems, too.
According to an article in The Economist, Chinese workers are organizing. When they strike, they get pay raises — and not just the small 5 or 10 percent raises we get in the U.S. Wages sometimes double overnight after the government demands companies meet workers’ demands, as happened recently to Honda. The company had to give a 47 percent raise to workers at its Chinese auto plant.
Meanwhile, Mexico’s average pay in manufacturing is almost equal to that of China, and with its proximity to the U.S., it’s becoming a better deal for companies. Manufacturing costs are also coming down in the U.S. thanks to lower energy costs.
Apple’s insourcing is high-profile because it’s Apple. But GE has also brought manufacturing home in a big way — much bigger than Apple. GE is spending nearly $1 billion in redressing one of its idle manufacturing plants in Louisville, Kentucky.
This is a serious move by GE, one they expect to make money on. Nonetheless, GE will continue to build in China.
According to Charles Fishman who wrote an article on insourcing for The Atlantic, the issue of cost is not just about wages. The equation is complicated and has to take into account many things including energy costs. For some companies, the math is showing it would be better and cheaper to build in the U.S.
Manufacturing jobs in the U.S.
This is nothing new. Some foreign auto companies have been manufacturing and assembling in the U.S. for years now: Honda, Hyundai and Mercedes-Benz all have manufacturing plants in Alabama. Subaru has its plant in Indiana, and Toyota has plants in Missouri, Alabama and Tennessee.
Many companies (less than 100) have moved manufacturing back to the U.S. in the last few years. Apple’s move might be for PR purposes, and it might not be. But after the Great Recession, it appears lessons have been learned.
If more companies really studied their bottom line, they might see that manufacturing in the U.S. might yield stronger profits, and strengthen the country as a whole.
But the big question remains: Will this trend last?
Reshoring Manufacturing: American Companies Moving Back To USA
in ManufacturingWhen five years later Mr Coopersmith investigated the difference between the total cost of production in China and America, including the cost of shipping, customs duties and other fees, he was amazed to find that California was only about 10% more expensive than China. And that was just on the immediate numbers, without allowing for the intangible benefits of making the devices almost next door. ET Water Systems’ new manufacturing partner, General Electronics Assembly, is in San Jose. As it happens, the firm’s owner has a Chinese background and a large portion of its employees are of South-East Asian origin. The number of firms known to have “reshored” manufacturing to America is well under 100. Doubtless many more are doing so quietly. Examples range from the tiny, such as ET Water Systems, to the enormous, such as General Electric, which last year moved manufacturing of washing machines, fridges and heaters back from China to a factory in Kentucky which not long ago had been expected to close. Google has attracted a great deal of attention for deciding to make its Nexus Q, a new media streamer, in San Jose.
The reshoring movement has to be kept in proportion. Most of the multinationals involved are bringing back only some of their production destined for the American market. Much of what they had moved over the past few decades remains overseas. And for many of the biggest firms the amount of work that they are still sending abroad outweighs the amount that they are bringing back onshore. Caterpillar, for example, is opening a new factory in Texas to make excavators, but has also just announced that it will expand its research and development activities in China.
According to a survey conducted by Harvard Business School last year, many firms are still deciding against basing activities in America. Professors Michael Porter and Jan Rivkin asked HBS alumni who were running businesses about their choices of location and found that many of them were deciding to leave because they thought wages abroad were lower than at home. Another important reason, though, was to be near customers in big new markets, which this report does not see as offshoring in the conventional sense. Messrs Porter and Rivkin argue that firms are now ready to reconsider offshoring. They realise that in many cases they overdid it, and are discovering hidden costs in moving production a long way from home. But, the authors argue, America’s government is not making the country’s business environment attractive enough for companies to want to come back.
Given the political pressure, it is natural for companies to want to publicise anything that looks like reshoring. Lenovo says that its decision to bring back computer-making to North Carolina was a way of looking after the firm’s reputation as well as bringing direct business benefits. The Chinese firm’s global supply-chain chief, Gerry Smith, says he has received dozens of telephone calls from former university classmates to congratulate him on the move.
But reshoring amounts to much more than public relations. It is being driven by powerful forces and will only get stronger. In a survey of American manufacturing companies by the Boston Consulting Group (BCG) in April 2012, 37% of those with annual sales above $1 billion said they were planning or actively considering shifting production facilities from China to America. Of the very biggest firms, with sales above $10 billion, 48% came out as reshorers. The most common reason given was higher Chinese labour costs. The Massachusetts Institute of Technology looked at 108 American manufacturing firms with multinational operations last summer. It found that 14% of them had firm plans to bring some manufacturing back to America and one-third were actively considering such a move. A study last year by the Hackett Group, a Florida-based firm that advises companies on offshoring and outsourcing, produced similar results. It expects the outflow of manufacturing from high- to low-cost countries to slow over the next two years and the reshoring to double over the previous two years. “The offshoring of manufacturing is now rapidly moving towards equilibrium [zero net offshoring],” says Michel Janssen, the firm’s head of research.
The crucial change that has taken place over the past decade or so is that wages in low-cost countries have soared. According to the International Labour Organisation, real wages in Asia between 2000 and 2008 rose by 7.1-7.8% a year. Pay for senior management in several emerging markets, such as China, Turkey and Brazil, now either matches or exceeds pay in America and Europe, according to a recent study by the Hay Group, a consulting firm. Pay in advanced economies, on the other hand, rose by just 0.5% to 0.9% a year between 2000 and 2008, says the McKinsey Global Institute. In manufacturing, the financial crisis actually reduced pay: real wages in American manufacturing have declined by 2.2% since 2005.
By contrast, pay and benefits for the average Chinese factory worker rose by 10% a year between 2000 and 2005 and speeded up to 19% a year between 2005 and 2010, according to BCG. The Chinese government has set a target for annual increases in the minimum wage of 13% until 2015. Strikes are becoming more frequent, and when they happen, says one executive, the government often tells the plant manager to meet workers’ demands immediately. Following labour unrest, wages at some factories have gone up steeply. Honda, a Japanese carmaker, gave its Chinese workers a 47% pay rise after strikes in 2010. Foxconn Technology Group, a subsidiary of Hon Hai Precision Industries, a Taiwanese firm that does a lot of manufacturing for Apple and other big technology firms, doubled pay at its factory complex in Shenzhen after a series of suicides. Its labour troubles are still continuing.
The pushmi…
BCG used to argue that companies unwilling to send their manufacturing to lower-cost countries were putting their very future in jeopardy. Now it says that companies will bring manufacturing back to America from China. As soon as 2015, says Hal Sirkin, a consultant at the firm, it will cost about the same to manufacture goods for the American market in certain parts of America as in China in many industries, including computers and electronics, machinery, appliances, electrical equipment and furniture. That calculation takes into account a wide variety of direct costs, including labour, property and transport, as well as indirect ones such as supply-chain risk.
After decades of complaining about American and European workers’ high pay, cushy conditions and unreasonable expectations, businesspeople now increasingly moan about Chinese workers. Their aspirations are rising and they are less willing to work long hours in boring factory jobs. A new labour law introduced in 2008 brought in more protection for workers, including the right to a permanent contract after a year of emp loyment, and workers are more aware of their rights. One consultant jokes that it is getting as hard to fire people in China as in France.
“China’s labour market is so overstretched that all the high-quality labour has been exhausted, you have to hire people with lesser qualifications, and then quality becomes a problem,” says Alain Deurwaerder, who until recently ran a factory in Thailand for Ducati, an Italian motorbike-maker. Another European chief executive complains about the flightiness of his Chinese workforce: “If someone on the other side of the road offers 5% more pay, they go.”
Lorne Schaefer, the owner of Jenlo Apparel Manufacturing, a Canadian-owned clothing company, opened a factory in Liuzhou in southern China in 2008 because he could no longer find workers at home; second-generation Chinese and Vietnamese immigrants in Montreal, he says, no longer want to work in the industry. Now he is having similar problems in China. The latest generation of workers, thin on the ground because of the country’s one-child policy, are not keen to toil in factories, nor do they want to work for companies that make goods for export, since the quality standards are far higher than for domestic consumption. So even in a labour-intensive industry such as textiles, the cost benefit that China offers is quickly eroding.
“Pay for senior management in several emerging markets, such as China, Turkey and Brazil, now either matches or exceeds pay in America and Europe”
Higher labour costs alone are not enough to prompt companies to leave China. The country has the world’s best supply chains of components for industry and its infrastructure works well. Firms have already invested heavily in being there. And companies that initially came for the low labour costs now want to stay because it has become a huge market in its own right. Nonetheless, “the incremental decision to invest in new production capacity in China has become tricky,” says Gordon Orr, Asia chairman for McKinsey.
One answer is to invest in other low-cost countries, of which there is no shortage. Myanmar, for instance, is attracting interest now that the West is lifting economic sanctions. But the scale, skill and productivity of the labour force there, and in countries such as Vietnam and Cambodia, nowhere near matches China’s, argues Mr Sirkin. And workers in those countries, too, are demanding better pay and rights.
Mexico, which has the huge advantage of bordering the United States, is increasingly attracting production destined for the Americas that would formerly have gone to China. Average pay for Mexican manufacturing workers is now only slightly higher than for Chinese ones, and the time it takes for goods to travel to North America is measured in days not months. Some firms, such as Chrysler, a car company, are even using Mexico as a base to supply the Chinese market. The country has become an important production hub for the aerospace industry. But Mexico’s poor infrastructure and highly publicised drugs-related violence may deter some firms.
Even as pay is rising rapidly in China, costs in America are falling. The successful extraction of natural gas from shale has dramatically lowered the price of energy. PricewaterhouseCoopers, an accountancy firm, reckons that these lower American energy prices could result in 1m more manufacturing jobs as firms build new factories. Companies such as Dow Chemical, a speciality chemicals firm, and Vallourec, a French steel-tubes firm, have announced new investments in America to take advantage of low gas prices and to supply extraction equipment.
…and the pullyu
Not only have American wages declined or are rising only slightly, BCG points out, but the dollar has been weakening. The workforce is becoming more flexible and productivity continues to rise. High unemployment has brought a willingness to work for lower pay, especially in southern states. These are mostly “right to work” states where individuals are free to decide whether to give financial support to a trade union, so unions are less powerful there. The very threat that jobs will be outsourced will also have played a role in keeping wages down.
Alabama, one such state, received a big boost last year when Airbus, a European aeroplane manufacturer, said it would open a big new factory. Airbus also plans to expand its production in Asia beyond its main factory in Tianjin, China, to be close to fast-growing new markets. Fabrice Brégier, the firm’s chief executive, says that for skilled workers, “China is no longer a low-cost country.”
Big unions in America have sometimes been willing to let wages fall to keep jobs at home. In 2007 the United Auto Workers union (UAW) accepted a two-tier wage structure under which some new blue-collar workers are paid only half as much as longer-serving ones. In 2011, after the government had bailed out part of the motor industry, the Big Three carmakers employed more second-tier workers, reducing their overall labour costs. Ford has brought back production from China and Mexico to Ohio and Michigan, thanks to a new agreement with the UAW.
As the example of ET Water Systems showed, transport costs are playing a big part in reshoring. Rising shipping, rail and road costs are most damaging for companies that make goods with relatively low “value-density”, such as consumer goods, appliances and furniture, according to a recent McKinsey report on global manufacturing. That makes reshoring or nearshoring more attractive. Emerson, an electrical-equipment maker, has moved factories from Asia to Mexico and North America to be closer to its customers. IKEA, a Swedish firm that makes products for the home, has opened its first factory in North America as a way to cut delivery costs, and Desa, a power-tools firm, has returned production from China to America because savings on transport and raw materials offset the higher labour costs.
In the longer term reshoring will be boosted by the use of advanced manufacturing techniques that promise to alter the economics of production, making it a far less labour-intensive process. 3-D printing, a process in which individual machines build products by depositing layer upon layer of material, is already being used in research departments and factories. Disney is developing 3-D printed lighting for interactive toys, and says that in future the interactive devices inside such toys may be printed rather than assembled by hand. Additive manufacturing machines can be left alone to print day and night. For now they are used mainly for prototyping and for complex parts, but in future they will increasingly make final products too.
Robots are already making a difference to the share of labour in total costs. Cheaper, more user-friendly and more dextrous robots are currently spreading into factories around the world, and they cost just the same in America as they do in China. Relative to the cost of labour, average robot prices since 1990 have fallen by 40-50% in many advanced economies, according to McKinsey. Baxter, a new generation of robot made by Rethink Robotics, an American firm, costs $22,000 apiece and is so safe and simple that it can be taught by an unskilled worker and operate right next to real people.
Baxter and his like may mean there will be fewer manufacturing jobs overall, but those that remain can stay close to a firm’s domestic headquarters. And even if the manufacturing activity itself does not employ many people, the supply chains that spring up around it will create new work.
Getting the word out about manufacturing
in UncategorizedForum focuses the economic, educational need to focus on advanced manufacturing.
That was the consensus at a recent NH Works workforce development forum at New Hampshire Technical Institute in Concord. Staff from the Office of Workforce Opportunity and the New Hampshire Department of Employment Security joined representatives from vocational rehabilitation, adult education, veterans support and other state agencies for the daylong event.
During a forum led by Ross Gittell, chancellor of the Community College System of New Hampshire and an economist, advanced manufacturing was the topic of choice.
And now, said Gittell, “Employment is stabilizing and growth opportunities for manufacturers are adding up. This presents an exciting opportunity.”
Poised for growth, manufacturers need more technically skilled workers, and under a Department of Labor grant, CCSNH has partnered with businesses and state agencies to form the Advanced Manufacturing Partnerships in Education initiative.
“It takes a partnership approach between state, education and industry to build the workforce and create well-paying jobs,” Gittell said. Under the grant, “we met with manufacturers and asked them what they needed. We’ve been hard at work at all our colleges to build an advanced manufacturing curriculum with a focus on specialized industry sector training.” With e-learning, hybrid and common core courses, CCSNH is building stronger and higher capacity training programs, he said.
Curricula were designed with the guidance of more than 100 business and industry partners, and the consortium aims to touch thousands of students and add as many jobs in the state, he said.
All told, numbers from a 2011 Smart Manufacturing High Technology study by the Center for Public Policy Studies show that, if the initiative reaches its full potential, it could have a positive economic impact measured in the billions of dollars in New Hampshire alone.
“We are well-positioned for success,” Gittell said
‘Vision and direction’
Key to that success is the partnership the colleges and business leaders share with agencies like DRED, OWO, NHES and NH Works, which support both businesses and job-seekers by helping to them with training opportunities, he said.
While large “anchor” industry partners are essential to the advanced manufacturing initiative, Gittell said, 96 percent of businesses in New Hampshire are small businesses. That means options like the Job Training Fund can give high-tech companies a boost as they work with current and prospective employees to update skills.
Aid is also available through the Workforce Investment Act, an employment and training program funded by the U.S. Labor Department to help dislocated workers and other eligible adults and to help companies find skilled workers.
“To sustain ourselves, we need vision and direction, partnerships and skill-set development,” said Department or Resources and Economic Development Commissioner Jeff Rose. “Aligning education and training programs to industry needs is very important. We do have the vision of how we want the workforce to look, based on industry need, and state agencies are looking forward to working with you.”
State Sen. Molly Kelly, D-Keene, called growing the economy through advanced manufacturing “one of her favorite subjects.”
“What I see is not the kind of memory I had of manufacturing,” she said. “These places are incredible. The precision is fascinating; the things we’re making are works of art. Our workers are very good – and they are making very good livings. But I don’t think that is the common perception.”
For example, she said, many people aren’t aware of the need for science, technology, engineering and math-skilled employees, and they are shocked to see the clean, high-tech environments in which those employees work. She herself was surprised when, in 2008 as the nation’s economy reeled, New Hampshire manufacturers were telling her, “We have jobs. We don’t have skilled workers.”
That’s the focus of the state Advanced Manufacturing Education Advisory Council, she said. “We step outside of our silos. Educators know education and manufacturers know what they need to grow.”
This article appears in the July 12 2013 issue of New Hampshire Business Review
Reshoring: When Jobs Come Back Home
in UncategorizedSometime during the past decade, when most everyone was focused on inflating the housing bubble, I was called into a senior manager’s office. My employer was planning to move an assembly line to Mexico and thought I would be a great manager for the project. As the executive discussed the importance of the move, my thoughts wandered to Thanksgiving.
Although a city boy, I grew up with tractors. I played with scale models as a child, spent weekends on my grandfather’s farm and drove tractors long before I could legally drive a car.
My grandfather, dad and uncles farmed, built or repaired tractors. I loved to listen at family gatherings as they debated their politics — not of red and blue states but red and green tractors.
So when I graduated from engineering school, it was only natural for me to choose a supplier to the tractor industry. How I enjoyed contributing to those conversations.
“What are you working on now Rick?”
I would explain the latest technical advances, being careful not to violate customer confidentiality agreements. This would spark spirited conversation on the usefulness (or lack thereof) of the new features to farmers and the challenges to servicing the new features to mechanics.
Now, as the boss rambled, I could only envision the ensuing conversation:
“What are you working on now Rick?”
“Well, I’m managing the move of a major product line to Mexico.”
(Silence, followed by more silence)
“I believe the turkey is a little dry this year.”
I quickly told the boss that I wasn’t interested in spearheading the move.
So I’ve been more than a little pleased and interested as I follow the trend of manufacturing work moving back to the U.S. Known as reshoring, the development is so new that my word processing software doesn’t recognize the term.
While my motivation was primarily patriotic, that’s not industry’s driver. It’s simply making good business sense. Some of the primary reasons include:
* Shorter and predictable supply chains — the price on the invoice doesn’t matter when the product has to be air freighted due to changing customer demands or is stuck in a port due to a dock workers’ strike.
* Lessons learned regarding the criticalness for manufacturing and engineering to communicate when the product is more complex than a coat hanger.
* More lessons learned regarding the complexity of communicating, instilling quality systems and even ensuring protection of intellectual property when multiple tiers of suppliers are involved, with each subsequent layer becoming less sophisticated.
* Multiple years of double-digit wage increases in China, supported by government’s hopes of growing the middle class, narrowed the cost gap.
As a Lean advocate and former engineering manager, I foresaw the first three reasons. The fourth caught me completely off-guard. I reasoned that the sheer population of China would absorb wealth for generations before it materially impacted competitiveness. But the majority of the country lacks the basic infrastructure to take advantage of that population.
There’s one more important driver for reshoring. U.S. productivity continues to grow. We’re 20 percent more productive than we were 10 years ago, despite the fact the time span has been largely defined by tepid demand growth. Productivity always looks best in periods of high demand.
Therein lies the caveat with reshoring efforts. The work that is returning is not especially labor intensive, or at least not low-skills labor. The returning work values the top three reasons stated above — speed and agility, technical communication, and quality and protection of intellectual property.
The good news is that the jobs created by reshoring efforts, although not equal in number to those that originally left with it, are decent jobs. They rely on folks using their noggins more than their backs.
Oh, the rest of story regarding my personal outsourcing “opportunity?” The housing bubble burst, the Great Recession ensued and today that assembly line productively resides in central Iowa. And I can still attend and enjoy family reunions.
Benefits of Reshoring-Bringing Manufacturing Back to the USA
in NewsWe conduct research for clients across multiple verticals (consumer packaged goods, manufacturing, logistics, supply chain, fashion, restaurants, healthcare, etc…) and as a result of that broad base of clients we are able to gain perspectives on the economy, industries, and social and market trends.
One topic that is in the news often is outsourcing labor-intensive jobs and manufacturing particularly to countries in the Asia-Pacific region. With the recent news of buildings collapsing and workers tragically losing their lives or being injured or trapped due to lack of building safety standards, or any loss of life is a call for consideration. As a result Wal-Mart and some other large companies have implemented their own safety standards and continued outsourcing.
Recently a businessman from Florida was held captive for 6 days because Chinese employees feared losing their jobs and did not feel they were adequately compensated. These workers did something extreme to have their voice heard. The question to ask not only on a cost basis but on an ethical basis: Is it worth it? Perhaps, there is an ethical argument for bringing jobs back to the United States in addition to the cost argument about to be presented.
The risk analysis for manufacturing in the United States is far more straight forward than using an offshore source. At one extreme, having your company name associated with tragedy may lead to catastrophe & national infamy, but at a minimum uncertain raw materials, process stability, and quality standards will exact unknown (and unexpected) costs, not to mention sleepless nights. The expanse of US regulations from watchdog organizations, industry designed and self-promoted, and government based, provide for many layers of product protection stripped away from manufacturing that is taken offshore.
Mindspot Research has a long-term manufacturing client who has been in business for 25 years. ASH Industries, based in Lafayette, Louisiana, offers a range of engineering services and manufacturing processes. ASH addresses client needs from rapid prototyping to final assembly & custom packaging. Among ASH’s customers that cover the gamut of US Industry, from defense to medical and electronics to industrial, there is considerable pressure to outsource manufacturing work to places like Mexico and China.
Over recent years, Hartie Spence CEO of ASH Industries tells us that “While competing with China on a piece part basis is not possible, more and more observant customers do appreciate the impact that a knowledgeable US based manufacturer can have on reducing total product cost, increasing reliability, and shortening the timeline between concept to completion.”
Mr. Spence acknowledges that the argument for getting products from China because “it is so much cheaper” may, in fact, be limited to a range of products for which unit cost consideration far exceeds quality, manufacturing consistency, and communication needs. However, if the total landed cost is calculated along with manufacturing difficulties and inconsistencies, then the argument for “offshore” does start to disintegrate.
Additionally, consider that the number of defects per million parts will vary by the type of manufacturing. For example, if soldering parts is involved that is typically what causes the majority of the defects. If no soldering is involved it will be something else (i.e. pick and pack). Using a Six Sigma process improvement methodology the acceptable defects per million (DPMO) is 3.4. It is widely commented on that other countries have a higher defect per million number than the United States. Recent examples include solar panels manufactured in China with defect rates ranging from 5%-22% according to the New York Times. Perhaps that doesn’t seem like a lot. However, if we apply this to something that we are all used to like medical prescriptions; consider that 99% quality (3.8 sigma) and 99.9997% quality (6 sigma) is the difference between 200,000 wrong drug prescriptions a year and 68 wrong drug prescriptions a year.
Here are 15 potential hard cost benefits associated with “reshoring,” which is bringing manufacturing back to the USA from another country:
• Shorter delivery times/Faster
• Lower transportation costs
• Fewer defects
• Shipments not held at customs
• Reduces exchange rate risks
• Political stability
• Economic stability
• Established worker safety compliance (building, working conditions, # of hours worked)
• Established materials safety compliance (contamination)
• Stamp it “Made in the USA”
• Supports the U.S. economy by employing U.S. workers
• Reduces risk of being associated with negative events/PR
• U.S. plants are more established/higher number of years in business
• More world-class manufacturers in the United States
• Customer Service
At the end of the day, whether it’s the 4th of July or another day, it’s the total landed cost that matters to the bottom line.