Written By:
Thomas A. Hemphill, Waheeda Lillevik, and Mark J. Perry
January, 2013
We have a skills gap and it’s going to get worse. Here’s what we can do about it.
It is generally acknowledged that there is a shortage of skilled manufacturing workers in the United States, but estimates of the size of the shortage vary widely. At a time when unemployment in the United States remains stubbornly high, and while the U.S. manufacturing sector may be in the early stages of a renaissance, having a shortage of skilled workers is a serious challenge that needs to be addressed.
In October 2012, the Boston Consulting Group (BCG) released a study, “Made in America, Again: Understanding the U.S. Manufacturing Skills Gap and How to Close It,” concluding that the existing manufacturing employee skills gap that has been widely reported is “more limited than many believe.” In contrast to several previous studies and widespread anecdotal evidence from the manufacturing sector, the BCG researchers found only limited evidence of a high-skilled manufacturing labor shortage nationwide — as only 5 of the 50 largest manufacturing centers are currently experiencing significant or severe gaps. High-skilled workers are generally considered to have technical training and industry certification, or an associate’s or bachelor’s degree in a manufacturing-related field.
However, in 102 out of 389 Metropolitan Statistical Areas (MSA), located primarily in the Southeast and Gulf Coast areas with relatively small manufacturing bases, manufacturers are facing skills gaps in specific job categories, such as machinists, welders, and industrial machine mechanics.
The BCG researchers also estimate that the high-skills gap in the United States translates to a shortage of only between 80,000 and 100,000 manufacturing employees, or about 8 percent of the nation’s high-skilled manufacturing labor force of 1.4 million workers. Those estimates differ significantly from other research that suggests a much greater shortage of skilled factory workers.
In this article, we discuss the various estimates of the current skilled worker shortage, consider the demographic trends that will affect the future skills gap, and explore the alternative approaches to closing the skills gap.
Do Skills Pay the Bills?
In its report, the BCG concludes that U.S. manufacturers are trying to hire high-skilled workers at “rock-bottom” wage rates, and that is not what it would characterize as a “skills gap.” As Adam Davidson asks in his recent New York Times Magazine article “Skills Don’t Pay the Bills”: Who wants to operate a highly sophisticated machine for $10 per hour? Answer: not a lot of people. As a result, says Davidson, there really isn’t a skills gap. Rather, it’s the unwillingness of manufacturers to pay higher wages that is causing the skilled worker shortage, which is a view that is consistent with the BCG report.
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There is general consensus that a skills gap exists and that it will likely worsen in the near future.
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Regardless of exactly how serious the skilled worker shortage is, U.S. manufacturing employment has increased by more than 500,000 jobs over the last three years, as factory payrolls have grown from 11.46 million to 12 million at the end of 2012.
This recent expansion in manufacturing employment has played a critical role in supporting and strengthening the overall economy as it has emerged from the Great Recession of 2009. In fact, there is ample evidence that manufacturing has been at the forefront of the U.S. economic recovery over the last several years, and it’s generally expected that manufacturing will continue to play a key role in the future of the U.S. economy.
According to “Leadership Wanted: U.S. Public Opinions on Manufacturing,” a national survey of 1,000 Americans released in October 2012 and commissioned by Deloitte, a consulting and accounting firm, and the Manufacturing Institute, a Washington, D.C.–based affiliate of the National Association of Manufacturers (NAM), survey results reveal the importance of the manufacturing sector to the health of the U.S. economy.
For example, the national survey results show that 90 percent of respondents rated manufacturing as “important” or “very important” for their economic prosperity and America’s standard of living.
This position is supported by national industry sector data, as NAM reports that the manufacturing sector’s economic multiplier effect on the U.S. economy is significant, with every dollar in final sales of manufactured goods adding $1.48 in economic output from other sectors of the U.S. economy.
It is thus not surprising that when Americans were asked in the “Public Viewpoint on Manufacturing” survey what type of facility they would establish if given an opportunity to create 1,000 new jobs in their community, they placed manufacturing at the top of their lists, ahead of energy, technology, health care, and communications.
Advanced Manufacturing Skills Shortages
While BCG estimates a current shortage of between 80,000 and 100,000 skilled manufacturing workers nationwide, manufacturers themselves report a much higher skilled labor deficiency.
In a September 2011 report, “Boiling Point? The Skills Gap in U.S. Manufacturing,” commissioned by Deloitte and the Manufacturing Institute, an online survey of 1,123 U.S. manufacturing executives across 50 states was conducted, and 83 percent of American manufacturers reported a moderate or severe shortage of skilled workers that translates into approximately 600,000 skilled manufacturing positions that are currently unfilled.
In the not-so-distant long term, the manufacturing skills gap is forecasted to worsen. While the BCG and the Manufacturing Institute differ on the current number of unfilled positions, they both agree that certain demographic realities will contribute to a much greater skilled worker shortage in the future.
According to the U.S. Department of Labor, the percentage of manufacturing workers aged 55 to 64 years and the share of workers older than 65 years have both significantly increased since 2000. Moreover, the Department of Labor reports that the median age of the manufacturing workforce rose from 40.5 years in 2000 to 44.1 years in 2011. The Society of Manufacturing Engineers predicts that the shortfall of skilled factory workers could increase to 3 million jobs by 2015 due to the aging manufacturing workforce and the resulting retirements of older workers, at the same time that an anticipated manufacturing rebound will increase demand for skilled workers. This expected skilled labor shortfall is reinforced by BCG research that finds 37 percent of manufacturers who had shifted manufacturing to the United States from another country cited better access to a skilled workforce as a strong factor in their decision; only 8 percent cited this as a reason for moving production out of the Uni
ted State
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Even with a limited skills gap today, the BCG study forecasts a future high-skills gap in manufacturing that could approach 875,000 machinists, welders, industrial engineers, and industrial machinery mechanics by 2020. Nevertheless, whether on the high end or low end of the estimated current manufacturing high-skills gap, in a 21st-century American economy increasingly built on capital-intensive, cutting-edge technology-based “advanced manufacturing,” high-skilled employees are the key to a successful enterprise.
Looking forward, there is general consensus by both BCG and the manufacturing industry that any skilled worker shortages today will be eclipsed by much larger challenges in the coming decade because of the pending wave of retirements.
Do We Have a “Skills Gap”?
How do we reconcile the fact that NAM is reporting a skilled worker shortage of 600,000, while the BCG’s estimate of the gap is only 80,000–100,000 workers, and Adam Davidson dismissively refers to the current situation as a “so-called skills gap” and a “fake skills gap”?
To start, just because workers may not want to train for a job that has a low rate of pay does not necessarily mean that a real skills gap does not exist. The discussion should not focus so much on whether the worker shortage is 80,000 or 600,000, but rather on identifying the root cause of the skills gap, large or small, and how to address it. Concerns about finding just the “right” labor for advanced manufacturing in the United States is a much more complex issue than has been presented in the popular media. As referenced above, both BCG and NAM have identified current and projected shortfalls in the supply of skilled manufacturing labor, even though they disagree on the magnitude of the deficiency. And the current general demographic shift of the workforce will significantly impact the manufacturing sector in the future due to the aging workforce, a reality that even the BCG clearly acknowledges.
Davidson asserts that manufacturers are only willing to pay their skilled workers $10 per hour, and it is employer stinginess that is responsible for the “so-called skills gap.” In response to that claim, Paul Downs (proprietor of Philadelphia-based Paul Downs Cabinetmakers) wrote in a New York Times blog post, “Why Training Workers Costs More Than You Think,” that his experience as a factory owner was much different than Davidson’s narrative. In fact, Downs personally prefers to pay his skilled workers at a higher rate, essentially saying that you “get what you pay for” in terms of reliable and valuable workers.
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U.S. manufacturing employment has increased by more than 500,000 jobs over the last three years.
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What Downs identifies as the “Achilles heel” in Davidson’s allegedly low-wage argument is the cost (and feasibility) of extensive on-the-job training. If employers were to assume all the costs of training, it would be very costly, especially for cross-training existing high-skilled workers in a current organization. Downs does a very good job of breaking down the costs of training in terms of lost productivity, the costs of paying someone to train instead of “produce,” and other related and often “hidden” but real costs of in-house training.
The solution to closing the skills gap lies in between these two alternatives – employers’ willingness to pay competitive wages and assume some of the employee training costs, and job-seekers’ willingness to pay for an education and acquire the marketable skills in demand by manufacturers.
Many of the barriers to developing a healthy pipeline of dedicated, skilled workers for the manufacturing sector lie in perceptions. Employers who view labor as capital – and capital that is worth investing in – will view money spent to train their employees as an investment rather than an expense, as Downs suggests. However, he is correct that training requires substantial and possibly prohibitive costs to employers; this is where job seekers must be willing to assume part of the training costs as well by enrolling in training programs at their own expense.
The Manufacturing Institute has developed partnerships with high schools, community colleges, and national accrediting bodies to ramp up the pool of skilled labor – but this isn’t happening fast enough for the manufacturers currently experiencing labor shortages.
Recognizing this, the Automation Federation has identified a set of competencies that focus on building general skills, such as personal effectiveness and academic competencies. Building off these competencies, the Manufacturing Institute developed a fast-track program called “Right Skills Now,” which incorporates “stackable credentials.” This program comprises college course study for 18 weeks (in specific high-skilled manufacturing areas) and 6 weeks of a paid internship.
Two key outcomes of these initiatives are evident: training is an essential and unavoidable cost to both job seekers and manufacturers, and there is an urgent need to deal with the current and anticipated shortfall of skilled manufacturing workers. Clearly both manufacturers and educators have recognized that there is a skills gap and are on the path to developing programs to minimize it.
What to Do?
It is apparent that some mixture of employers’ and employees’ perspectives is needed. Companies want to have workers who are proficient in general skills – math, science, communication, reliability – and it is incumbent upon the job candidates to obtain these skills at their own initiative and expense. However, more job- and firm-specific skills can be taught to these workers through time-limited internships/apprenticeships in conjunction with formal skills-related educational programs, thus easing the burden on employers to field these costs and allowing employers to observe the performance of potential employees. In the longer term, employers will need to offer an appropriate market rate of pay to retain quality employees, ensuring that they reap the benefits of their personal investment.
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The shortfall of skilled factory workers could increase to 3 million jobs by 2015.
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If these avenues are made available, then why aren’t young people flocking to get trained in a sector like skilled manufacturing with such a high demand for workers? One reason can be perceptual: for years we have been telling our young adults that manufacturing jobs are headed overseas, and that these types of occupations are not a worthwhile educational investment. At the same time, parents and counselors have been encouraging high school graduates to attend college.
The October 2012 Deloitte–Manufacturing Institute survey results give credence to this perception. According to survey results, when it comes to choosing manufacturing as a career choice, only 35 percent of survey respondents would encourage their children to pursue a career in the manufacturing sector, ranking manufacturing only fifth among seven key industries listed. This perception has not yet changed sufficiently to encourage people to seriously consider skilled manufacturing as a viable career choice, enough so that they would invest in the education and training required for advanced manufacturing careers.
Manufacturing’s “image problem” may also be contributing to the skills gap. The correction of current misperceptions of U.S. manufacturing needs to be broadcast to a wider audience, especially to those individuals who can positively influence the critical demographic of high school–age potential manufacturing employees. While the Manufacturing Institute has initiated “Dream It. Do It,” a national career awareness and recruitment program to “engage, educate, and employ” the next generation of skilled manufacturing employees, the manufacturing sector faces formidable obstacles.
The Challenges Ahead
At the same time that some manufacturers are struggling to find skilled workers, there has been a recent trend of U.S. companies “reshoring” manufacturing output and jobs back to the United States from overseas, due to a number of favorable factors that have made domestic production increasingly cost-competitive.
In a recent article titled “The Insourcing Boom,” author Charles Fishman outlines five trends that have lowered the cost of manufacturing in the United States: rising oil prices, falling natural gas prices, rising wages in China, wage concessions by unions, and increasing U.S. labor productivity. As those five factors have combined to significantly lower U.S. manufacturing costs, many companies like GE have started increasing production at domestic locations, which has been accompanied by an increased demand for U.S. factory workers.
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Job seekers must be willing to assume part of the training costs by enrolling in training programs at their own expense.
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Some of the 500,000-person increase in factory payrolls since 2010 cited above is surely a natural outcome of the economic recovery, but another part of the increase in employment is coming from the many companies that have reshored production back to the United States in recent years. In a May 2011 report (“Made in the USA, Again: Manufacturing is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring”), BCG predicted that within a few years, China’s manufacturing cost advantage will disappear for 70 percent of the products currently produced there for the U.S. market, and increasing amounts of production will be “reshored” and “insourced” back to the United States, with the potential to create 2–3 million new factory jobs in America.
We could be facing a situation in the future where U.S. manufacturers will be trying to bring millions of factory jobs back to the United States at the same time that the industry is experiencing a wave of retirements from the aging manufacturing workforce. In that situation, the manufacturing skills gap will produce an even greater challenge for American manufacturers, and in fact, will increase the urgency of the situation.
Although there are some differences in estimates of the magnitude of the current skilled worker shortage in manufacturing, there is general consensus that a skills gap exists and that it will likely worsen in the near future. Fortunately, the issue of the skills gap is generating a fair amount of national media and industry attention, which is bringing some well-deserved debate to an important topic that is crucial to a key sector of the U.S. economy.
The future of America’s advanced manufacturing sector looks very promising overall, especially if the reshoring/insourcing trend continues and manufacturers can find skilled workers for the factory floor of the 21st century. Now that the manufacturing sector and the education establishment are working together to confront the advanced manufacturing skills gap and train skilled workers for advanced manufacturing, we are hopefully on a path toward resolving the current skilled worker shortage.
Thomas A. Hemphill is an associate professor of strategy, innovation, and public policy at the University of Michigan’s Flint campus. Waheeda Lillevik is an assistant professor of human resources and management at the College of New Jersey. Mark Perry is a scholar at the American Enterprise Institute and a professor of economics at the University of Michigan’s Flint campus.
Buying U.S. Made Goods Will Help Create U.S. Jobs
in UncategorizedHalf of the automobiles sold in the U.S. today are made in other countries. Toyota of Japan has been the number one auto seller in the world for the past several years. They hit a glitch with the nuclear accident that shutdown production for several months but statistics tell us they are rapidly catching up. Where are American owned General Motors and Ford? GM and Ford have been in second and third place in the U.S. auto market and are almost non-factors in the world marketplace.
How could this happen to us? How, indeed. Take a walk around your neighborhood and count the number of American-made cars in the driveways. A recent shopping trip to a clothing store yielded tags from Peru, Indonesia, China, Korea and several more. Shop your favorite stores from Wallmart to Belk, from Lowe’s to Home Depot and see what you can find that says “Made in America”. I don’t think you will have any better luck than I did finding home grown products.
Most of the country suffered major job losses between the 1960s and the 1990s. The South lost its textile manufacturing base. The northeast and north mid-west where steel was king became the rust belt. The secret to jobs is manufacturing. Each manufacturing job generates five support jobs. Thus, one manufacturing job lost means six jobs gone.
If we buy American products, however, the money stays in America and we create jobs for Americans. Yes, I know it’s more complicated than that. Some foreign made cars have American made components and some foreign owned firms manufacture in the U.S. Still, where does the money for management go and who banks the profit?
Who has the power to create jobs? It isn’t the president or Congress. It is the American consumer, you and me. The issue is consumer choice. The more we buy “Made in America” products the more jobs will be available for our friends and neighbors. Will it cost a bit more? Probably. But, if we are lucky enough to have a job, we shouldn’t notice it so much. Check the labels on what you buy. The job you save may be your own.
Dr. Mark L. Hopkins writes for GateHouse News Service and Scripps Newspapers. He is past president of colleges in universities in four states and currently serves as executive director of a higher-education consulting service. Contact him at presnet@presnet.net.
Pequea Machine Joins the Reshoring Movement: Reshores Part Production For Better Quality
in Uncategorized“That’s not good when you’re making a huge pile of gear boxes under warranty,” he said. “After years of getting crappy quality, we decided to bring the gear box manufacturing back to the United States.”
Pequea Machine manufactures farm equipment in Earl Township. Five years ago, it contracted to have its gear boxes for tedders — machines that fluff hay for drying — made in China to save some production cost, Skibo said. Two years ago, it began bringing the job back to the U.S. after receiving substandard quality from China. Now Pequea makes its gear boxes alongside the rest of the tedder and this month completed its first run, he said.
Pequea is part of a growing “reshoring” trend among manufacturers that have brought parts and products back to the U.S. to control quality, prevent supply disruptions and be closer to clients. Surveys suggest more companies will bring production back to the U.S. in coming years, and reviews of known reshoring suggest it’s a significant part of manufacturing’s recovery, supporters said.
Pequea Machine’s first run of 80 gear boxes is just the start, Skibo said. A normal run of the parts is 200 units.
“And for about the same price as we were paying for parts from China without the reliability problems,” Skibo said.
It costs about $900 to produce the gear boxes here in the U.S. and between $800 and $900 to produce them in China, he said.
Skibo touches on a significant issue in reshoring: When labor, transportation, stocking, customs, waste and other risks are factored in, the costs are nearly identical for many products, said Harry Moser, president of the Reshoring Initiative, an Illinois-based nonprofit that promotes reshoring.
Many manufacturers look at the near-term labor cost savings of producing overseas, and they look at transportation costs, but they forget the other factors, like rising wage rates, quality control issues and risks to intellectual property rights, Moser said. At some point, for some industries, the cost begins to level out, he said.
Reshoring Initiative offers companies a total-cost calculator on its website to research the economics of reshoring.
“We try to get enough attention to the subject so companies see there are people doing it, and they’re seeing significant numbers … but they’ll make the decision on reshoring based on the economics,” Moser said.
The economics of the decision were good for more than just Pequea.
The gear box reshoring meant work for two other companies, Skibo said. Providence Township-based Buck Co., a metal foundry, produced castings for parts, and Illinois-based Circle Gear & Machine Co. Inc. cut the gears for Pequea, he said.
York-based Mantec, Central Pennsylvania’s industrial resource center, has been aware of Pequea’s example and wants to help other companies reshore if possible, Director of Operations Fred Botterbusch said. The efficiencies of local manufacturing clusters can be a great pull for many companies, he said.
“It’s hard to operate a just-in-time manufacturing environment when your parts are coming from the other side of the world,” he said.
Pequea’s reshoring hasn’t created more jobs, Skibo said, but he expects it could add as many as 20 in the future depending on sales, as well as what spinoff his orders have on other companies. For now, the existing workforce is making the gear boxes.
In an economy where state and national unemployment are more than 7 percent, jobs creation is important to many people. Reshoring job-creation prospects are better or worse depending on whom you speak to.
“I think it’s coming,” Botterbusch said. “I sense we’re turning over into a more aggressive attitude.”
Moser agrees. His group has collected hundreds of stories about reshoring companies, such as tech giant Apple and appliance maker Whirlpool. The jobs tally from known reshoring over the past three years is 50,000, or 10 percent of the 500,000 manufacturing jobs the U.S. economy created in the same time, Moser said.
“We say it’s more than trickle but less than a flood,” he said.
Others are skeptical about reshoring’s ability to generate significant job growth. Small companies bringing production back is good, but it won’t produce thousands of new jobs for Pennsylvania’s economy, said David Taylor, executive director of Harrisburg-based Pennsylvania Manufacturers’ Association.
“The thing we hope will be most transformative on manufacturing will be the natural-gas industry,” he said.
With natural gas comes the petrochemical industry, such as the ethane cracker that Shell Chemical has proposed for Western Pennsylvania, he said. That could produce raw products for thousands of jobs making solvents, glazes and plastics.
Pequea’s Skibo said he’s confident from his discussions with other companies, large and small, that reshoring will have a significant impact in coming years. Either way, he’s happy with the decision.
“You’re going to see more and more of it,” Skibo said. “It’s a good feeling to bring back (production) and manufacture stuff yourself.”
Are Virtual Factories the Future of Manufacturing?
in UncategorizedThis flagship virtual factory will enable visitors to learn about the “Green Carbody Technologies – InnoCaT” innovation alliance, supported by the German Federal Ministry of Education and Research. The alliance has set itself the goal of significantly improving the resource and energy consumption of the entire manufacturing process, and of organizing it to be more easily planned and monitored, by using the automotive body-shop as an example.
The virtual environment will be based on an automotive plant, and will show attendees the numerous potential resource and energy savings in the tool-shop, press-shop, vehicle body-shop or paint-shop. The “factory of the future” will function with spontaneously networked and real-time-capable software.
These systems give visual feedback from the entry on a monitor displaying a 3-D reconstruction of an automotive component, such as a bumper. Using a non-contact, gesture-recognition system (think Tom Cruise in the movie Minority Report) developed by BMW Group, a quality assurance professional can examine and document flaws in a component simply by pointing. This allows the professional to remain at his desk and virtually interact with any testing object, saving time and effort.
As futuristic as this sounds, the hardware requirements are surprisingly common: a standard computer and two Microsoft Kinect systems – comprising a camera and 3-D sensors – are enough.
“Until now testers have to note all detected flaws, leave their work station to go to the computer terminal, navigate several screens and then enter the flaw location and type. This is laborious, time-consuming and prone to error,” says Alexander Schick, a scientist at the Fraunhofer Institute for Optronics, System Technologies, and Image Exploitation in Karlsruhe, Germany.
Gesture control significantly improves testers’ working conditions and saves time – employees can remain at their workstation and interact directly with the testing object. “If the bumper is fine, they swipe across it from left to right. In case of a flaw, they point to its location,” Schick explains.
The factory virtualization process is finding greater popularity worldwide, as large-scale operations begin adopting the technology to streamline production. Last year, Ford Motor Company announced its European facilities will be implementing virtual factory systems to improve assembly-line efficiency.
“Virtual factories will enable Ford to preview and optimize the assembly of future models at any of our plants, anywhere in the world. With the advanced simulations and virtual environments we already have at our disposal, we believe this is something Ford can achieve in the very near future,” José Terrades, simulations engineer at Ford of Spain, explained.
Various Fraunhofer Society innovations and exhibits will be part of Hannover Messe’s theme of Integrated Industry. Solutions for intelligent data processing in crisis management systems will also be a subject at the Fraunhofer exhibit in Hall 2, which looks at early detection of impending damage in deep-sea drillings, a new broadband sensor system for monitoring drinking water quality, and a sensor network with mobile robots for disaster management, triggered by earthquakes, floods, or industrial accidents.
Employers Add a Stunning 236,000 Jobs in Feb
in UncategorizedAnalysis: Report shows economy’s strengths
Analysis: A warning for investors
The consensus forecast of economists had estimated the economy added about 160,000 jobs in February.
Businesses added 246,000 jobs, while federal, state and local governments cut 10,000. Professional and business services, construction and health care led broad-based job gains.
The Labor Department revised down job gains for December and January by 15,000. December’s net payroll jobs were revised up to 219,000 from 196,000, while January’s were revised down to 119,000 from 157,000.
Some economists had been looking for strong gains after a report Thursday showed the number of Americans applying for unemployment benefits for the first time fell 7,000 to 340,000 in the latest week, and the four-week average of claims dipped to the lowest level in five years. Also, private payroll processor ADP estimated that businesses added 198,000 jobs last month.
Monthly job gains of 200,000 or more are typically needed to quickly bring down the unemployment rate. Job growth picked up last year to an average monthly pace of 181,000.
“We’re slowly and steadily accelerating,” says economist Joel Naroff of Naroff Economic Advisors. “The private side of the economy is in good shape. It’s the public sector that’s holding up” even stronger payroll growth.
Naroff expects average monthly job gains of 200,000-plus this year if the White House and Congress can agree to put off the budget cuts. If all the reductions occur, it likely would mean monthly gains of about 165,000, he says.
Business sentiment remains mixed amid the uncertainty in Washington. Thirty-three percent of executives plan to grow their staffs this year, 38% plan to reduce them and 29% expect no change, according to a first-quarter survey released this week by business consulting firm CEB.
In February, a broader gauge of distress in the job market — the underemployment rate — which includes discouraged Americans who have stopped looking for work and part-time workers who want full-time jobs, also fell to 14.3% from 14.4%.
Other signals were positive, too. The average workweek edged up to 34.5 hours from 34.4 hours in January. Employers often increase hours for existing employees before hiring. And average hourly earnings rose 4 cents to $23.82
Employers added 16,000 temporary workers. They typically add contingent workers before bringing on more permanent staff.
Less encouraging was an increase in the number of Americans out of work at least six months; that number rose to 4.8 million from 4.7 million. They now make up 40.2% of all those unemployed.
Professional and business services led job gains, with 73,000. Construction added 48,000 jobs and has added 151,000 since September on the housing-industry rebound. Health care added 39,000 jobs.
Leisure and hospitality, meanwhile, added 24,000 and manufacturers added 14,000.
Some economists still expect payroll additions this year could be slowed by Washington’s recent failure to renew a payroll tax cut, plus $85 billion in across-the-board federal spending cuts that started to take effect March 1.
But the economy has proved resilient so far. Measures of manufacturing and service-sector activity both showed growth in February.
And the housing rebound is sparking job gains in a range of industries, from construction to furniture sales and mortgage lending. Rising home and stock prices are making consumers feel wealthier, helping offset the effects of the payroll tax increase and higher gasoline prices.
'Made in USA' sees an uptick
in Uncategorized“We are just the first of many to come,” said Mr. Schiffer, who has committed $2.6 million to the project. “We’ll keep growing.”
The Made in USA movement is gaining steam, as retailers from Brooks Brothers to Walmart push to manufacture their wares in the United States to appeal to patriotic consumers and avoid costly overproduction as overseas labor and shipping costs rise. Surprisingly, the trend is playing out on a smaller scale in the city.
For an area that has seen apparel-making plummet—last year, on average, there were 14,900 apparel manufacturing workers in New York City, and two decades ago, there were more than 80,000, according to the New York State Department of Labor—new factories are welcome additions.
Mr. Schiffer’s factory, Keff NYC, has eight knitting machines (each costs $100,000), and he has ordered a dozen more. Though the company is currently making samples, Mr. Schiffer expects to engage in production of up to thousands of units. The company has already signed Abercrombie, Opening Ceremony and Burt’s Bees Baby as clients. It’s also producing uniform accessories, including hats, gloves and scarves, for the 2014 Winter Olympic Games.
Orders up by 30%
“Up until now, no one was around where designers could get samples done,” said Marcus Kirwald, product development manager. “They had to send them out, and there was lot of time and frustration involved.”
Brooks Brothers has made a name for itself in local production—it has manufactured its ties at a Long Island City, Queens-based factory for decades, for example, and operates two additional East Coast facilities—and is working to strengthen its capabilities. In its neckwear factory, which last year produced 1.5 million cravats, Brooks Brothers employs 300 workers, up 10% since early 2011. Three years ago, the brand overhauled its operations from assembly line to “module,” or manufacturing by team, to become more efficient, and it began producing apparel for other brands, such as Club Monaco and Jack Spade.
The clothier now promotes its American-made wares through a special section on its website and specific catalogs—recognizing that consumers are paying attention to the origin of their clothing. (Ralph Lauren was criticized last summer for making the U.S. Olympic team’s uniforms in China.)
“It’s really critical as part of our heritage and our culture that we maintain and actually increase American manufacturing,” said Paulette Garafalo, president of international and manufacturing at Brooks Brothers.
Asia’s rising middle class also has altered the landscape. Asian shoppers are beginning to covet U.S.-made brands, according to some designers. New York-based designer Patrik Ervell, who launched his eponymous menswear business seven years ago and manufactures 95% of his goods in the U.S., has noticed that buyers from Japan, China and South Korea are looking to stock only apparel manufactured in the U.S. If it doesn’t carry that label, they’re not interested, he noted. Currently, Asia represents 25% of his wholesale business.
Shifting pattern”People have started to fetishize this ‘Made in USA’ thing; it has an aura around it,” said Mr. Ervell, who sells to upscale stores such as Barneys New York and Opening Ceremony. “That period of churning stuff out of China and shipping it here is shifting.”
Domestic production is pricier—by as much as 40%—but the gap has been narrowing in recent years. In addition, manufacturing here means that retailers can get smaller batches of products into stores more quickly, reducing the need for end-of-season markdowns.
“It’s the unsold portion which becomes the albatross around their necks,” said Andy Jassin, head of retail consultancy Jassin Consulting Group. “It’s a matter of what’s efficient, and we’re beginning to see the efficiency of ‘Made in USA.’ “
And Americans appear increasingly willing to pay for it. About 75% of consumers said they would shell out more for American-made goods, up from 50% in 2010, according to America’s Research Group. Typically, U.S.-made products have been limited to small high-end designers, but now larger mainstream retailers, like Ohio-based Abercrombie, are investing in U.S. manufacturing.
“A lot of these stores are strategizing how they can do a ‘Made in USA’ product now because they think the country is ready for it,” said Mr. Schiffer.
Even so, manufacturing locally, whether in New York’s garment district or Garland, N.C.—where Brooks Brothers operates a factory—continues to present challenges. Most apparel sellers buy fabrics overseas, because Environmental Protection Agency rules for printing with dyes make local sourcing difficult. Meanwhile, when brands began outsourcing manufacturing and shuttering their local factories decades ago, younger workers, especially in the garment district, started abandoning the field for more lucrative industries.
So far, the return of some factories has not been enough to reverse the loss of manufacturing jobs in the city, where fashion jobs have steadily declined from 200,000 in the heyday of the 1960s.
“You don’t see the kids of the kids in the factories anymore,” said Alex Garfield, who has been in the apparel industry for more than two decades, currently as a founder of women’s pants brand Peace of Cloth. “A whole generation is missing.”
Still, the dynamic is shifting.
“Ten years ago, it was six times cheaper to manufacture in China,” said Ms. Garafalo. “Today, it is about three times less expensive, so the opportunity for better margins [there] is reducing.”
Bill demands American-made steel in state projects: Requirement could benefit Iron Range, workers
in UncategorizedThe effort to boost U.S.-made steel would directly benefit Minnesota iron ore mining industry, which supplies most of the raw material — taconite — to make domestic steel.
“Eighty percent of the first-pour steel made in the U.S. comes from iron ore from Minnesota’s Iron Range,” Craig Pagel, president of the Iron Mining Association of Minnesota, told the News Tribune. “More steel means more iron ore and more jobs. … This helps us compete with the (below-cost) steel-dumping by China and other nations that cost us jobs here.”
The requirement would apply to virtually all types of steel — rolled, forged, extruded, drawn, cast, fabricated or other — in nearly all types of public works projects, from bridges to buildings, roads, airports, rail and waterways.
State and local government agencies would be required to include the U.S.-made requirement in all contracts with private builders.
Not only are the nation’s largest blast furnaces using Minnesota ore to make steel, but more Minnesota products, such as iron nuggets, are being developed to feed so-called mini-mill electric arc furnaces.
John Rebrovich, a Steelworker officer whose family has mined iron ore on the Range for more than 70 years, said the bill will “promote growth and expand the tax base.” The bill also has support of the new Iron Ore Alliance of U.S. Steel workers and management at the company’s two Minnesota taconite plants. No one testified against the bill on Wednesday.
The bill is sponsored by state Rep. Carly Melin, DFL-Hibbing, with most Iron Range lawmakers as co-sponsors.
“This levels the playing field for steel and iron ore here at home, where we have labor laws and environmental laws and pay a living wage,’’ Melin said after the hearing. “This is about jobs. And we have both labor and management at the table in support.”
The Senate version, SF 318, is sponsored by state Sen. Dave Tomassoni, DFL-Chisholm.
The bill does have exceptions, including if there isn’t enough U.S.-made steel product available or if the American-made products are more expensive by 15 percent or more than the foreign competition.
The bill now goes on the House Capital Investment Committee.
The steel requirement would follow a state law approved last year requiring the majority of all steel used in the proposed Minnesota Vikings stadium to be made in the U.S.
Chisholm-Hibbing Airport
Melin sponsored another bill heard in the same committee Wednesday that would provide $5 million in state bonding money for improvements at Range Regional Airport shared by Chisholm and Hibbing. The state money would be used to match federal and IRRRB grants for airport improvements.
The airport hopes to make improvements to the terminal, including security checkpoints and adding a covered entryway for passengers to board planes.
Shaun Germolus, executive director of the Chisholm-Hibbing Airport Authority, told the committee that “we’ve outgrown our facilities” and that the airport was key to regional economic development.
No vote was taken, but the provision could be added to the Legislature’s bonding construction package later in the session – if a bonding bill is approved.
Made in the USA: More Shoppers Buying American
in American Made, Consumer Products, Economy, Made in USAChris Rank | Bloomberg | Getty Images
A curious thing is happening among American shoppers. More people are taking a moment to flip over an item or fish for a label and ask, is it “Made in the USA?” Walmart, the nation’s largest retailer, earlier this year announced it will boost sourcing of U.S. products by $50 billion during the next 10 years. General Electric is investing $1 billion through 2014 to revitalize its U.S. appliances business and create more than 1,500 U.S. jobs.
Mom-and-pops are also engineering entire business strategies devoted to locally made goods — everything from toys to housewares. And it’s not simply patriotism and desire for perceived safer products which are altering shopping habits.
The recession, and still flat recovery for many Americans, have created a painful realization. All those cheap goods made in China and elsewhere come at a price — lost U.S. manufacturing jobs. A growing pocket of consumers, in fact, are connecting the economic dots between their shopping carts — brimming with foreign-made stuff — and America’s future.
They’re calculating the trade-offs of paying a little more for locally-made goods.”The Great Recession certainly brought that home, and highlighted the fact that so many jobs have been lost,” said James Cerruti, senior partner for strategy and research at consulting firm Brandlogic. “People have become aware of that.”
‘Made in the USA’ is known for one thing, quality,” said Robert von Goeben, co-founder of California-based Green Toys. All of their products from teething toys to blocks are made domestically and shipped to 75 countries.
“We are reaching a tipping point, where Americans are relearning its competitive advantage,” von Goeben said. “It’s not about the cheapest product, but the best quality product.”
For many consumers, affordability has driven the bulk of purchasing decisions. Businesses in turn have ventured abroad for cheap labor and specific manufacturing skills to keep prices down.
So what’s driving big and small businesses to increase sourcing of U.S. products — beyond the obvious good PR?
In short, a shift in global manufacturing that’s in the early stages. A combination of factors including rising labor costs are eroding China’s cost advantage as an export platform for North America.
Mexico, meanwhile, is rebounding as a manufacturing base, and wages there will be significantly lower than in China, according to a Boston Consulting Group report. By 2015, BCG forecasts that for many goods destined for North American consumers — manufacturing in some parts of the U.S. will be just as economical as manufacturing in China.
For years, the main attraction of China outsourcing has been access to low-cost labor. But pile on related business costs such as transportation of goods, duties and industrial real-estate expenses, and the global manufacturing landscape is no longer China-dependent.
Domestic manufacturing, meanwhile, is on the mend. The pace of growth in the U.S. manufacturing sector picked up to its fastest rate in more than a year and a half in February, as new orders continued to accelerate.
And imported goods — at least in footwear and apparel — are retreating slightly. While more than 97 percent of apparel and 98 percent of shoes sold in the U.S. are made overseas, U.S. imports in those two categories in 2011 declined for the first time ever since such data has been tracked by the American Apparel & Footwear Association.
“The cost competitiveness of U.S. manufacturing is on the rise,” said Cerruti of Brandlogic.
Of course, plenty of goods are still made abroad. And many Americans are broke, jobless or underemployed four years after the 2008 economic crisis. An unemployment measure that factors in those who have quit looking for jobs, as well as those working part-time for economic reasons, is at 14.4 percent. For many, buying “Made in the USA” is a luxury they can’t afford.
Sarah Wagner was inspired by a road trip including tours of US companies to create USA Love List, a website devoted to American-made goods.
USA Love List[p][/p]
Despite many shoppers’ thin wallets, there’s a growing appetite for domestically-made goods.
Blogger Sarah Wagner has turned her passion for “Made in USA” products into a successful website. USA Love List is devoted to sourcing and showcasing where to buy domestically-made items, ranging from lip gloss to pet food. She regularly scans the aisles of big retailers such as Costco and Target for American-made goods.
Site traffic has mushroomed since USA Love List launched in November 2011. “There’s clearly a hunger for this sort of information,” said Wagner, based in Philadelphia. “Companies have no idea how much Americans want to support American companies. They want to get behind their neighbors and communities to make sure those jobs stay there. It’s struck a nerve with a lot of people,” she said.
American-Made Green Products
Among the growing piles of American-made goods, many are green with recycled materials. Turns out it’s easier to manufacture green products domestically because sourcing of recycled materials including recycled plastic is particularly plentiful and transparent in the U.S., said Jenna Sellers Miller, president of Architec Housewares, a 9-employee housewares business, based in Delray Beach, Fl.
Some of Architec’s EcoSmart line of products are sourced domestically. The products are available at Target, Macy’s and Bed Bath & Beyond. “We’re getting appointments with retailers who just want to see our ‘Made in the USA’ products,” Miller said.
Domestically sourced recycled materials and a broader commitment to the environment shape Green Toys business strategy as well. With their factory and warehouse 10 miles apart in northern California, they also cut transportation costs and related emissions.
The 12-employee company also creates a ripple effect of jobs including supporting local drivers, shipping and packaging companies and testing labs. “We could not have started this company anywhere else,” von Goeben said. “This is a uniquely American company.”
Later this year, Green Toys will ship its first batch of toys from northern California to China. Said von Goeben, “It’s the irony of all ironies.”
All American Clothing Growing with Demand for USA-Made Goods
in UncategorizedThe company rose to national prominence with the U.S. Olympic team uniform uproar and revelations that designer Ralph Lauren, who built an image on an all-American look, had the garments made in China. Subsequently, Lauren said he would lead a discussion about bringing clothing manufacturing back to the U.S.
The purchase of the El Paso facility, a deal sealed in the past few weeks, gives the company greater leverage. Even with the purchase, the company’s three-year-plan remains in place to build production in Arcanum, said owner Lawson Nickol.
Buying the manufacturer could mean employment for 70 people at the Texas location, and more jobs in Arcanum. “We can get more competitive,” Nickol said.
There’s room for expansion. The complex once employed 200. Nickol, who runs the online retailer with his family including son B.J. and wife Mary Ann, puts annual growth at double digits.
The future looks bright. Nickol said he has fielded inquiries from 300 companies large and small that would like to work All American products into their lineups. Because his business sells direct to the online purchaser, All American can match or beat the higher-end clothing catalogs on price.
All American is the latest success in the direct-to-consumer, made in USA, clothing segment. There’s San Francisco’s American Giant Clothing, a sweatshirt/hoodie hit that sold out over the holiday season. There’s also American Apparel, which advertises as “sweatshop free.” And old standbys like Stormy Kromer or Ironwood, Mich., have expanded from a line of wool hats to outerwear. The industry lost 80 percent of its jobs since 1990 and the companies are trying to build employment back.
At All American, about $50 gets a pair of jeans. For a couple dollars more, there’s a traditional blue jean jacket. For those who insist on clothing that’s cheaper and foreign made, Nickol responds that his competitive edge is item quality and durability. Now, it’s style, too.
His new ladies jean line has fancy retro pocket stitching and offers three different shaped jeans to match body types. The show room is intended for large order buyers and includes fitting booths. But local customers can stop by, too.
“We’ve never turned anyone away,” Nickol said. Customers still have to order online, but they can pick the product up in Arcanum to save on shipping.
Nickol sources every thread that goes into his wear from the U.S., all the way from those growing the cotton to the cut-and-sew operation. The company offers an online “traceability” system. Buyers can track the origin of the products all the way back to the U.S. cotton field and farmer.
A survey this month of 1,845 adults by www.CouponCodes4u.com, one of the leading coupon websites in the U.S., found that even among the bargain-hunting coupon crowd, a large contingent want U.S. products. When asked if they paid attention to whether goods they purchased were made and produced in the U.S., the majority, 39 percent, said that they did, while 25 percent said it depended on the product and 36 percent said they did not care where their goods were made.
When asked which items they looked for, 77 percent said American meat, 51 percent said clothes, and 39 percent said U.S.-made gadgets. Asked why they preferred to purchase U.S. products, the majority, 42 percent, said they wanted to help boost the economy any way they could.
“There is a huge market for USA made,” Nickol said.
Intel’s First Factory Customer Touts Made-in-USA Chips
in UncategorizedIntel believes it can make smaller and more sophisticated transistors than other foundries. Achronix, which makes a variety of programmable chips that use lots of transistors, says its bet on Intel has paid off as advertised.
The chips, which include models with a whopping six billion transistors, consume half the power of competing chips and cost about half as much, Achronix says. It is shipping sample quantities to customers now and, when extended testing is completed, will be shipping them in volume in the third quarter, says Robert Blake, the company’s president and chief executive officer.
Most foundry factories are in Taiwan or other parts of Asia. Achronix is quick to point out that the entire process of making its chips is handled in the United States.
An Intel factory in Oregon fabricates the Achronix chips on silicon wafers. They are then shipped to facilities Arizona for packaging.
Though U.S. makers of computers and other devices have long relied on foreign suppliers, government agencies and companies that sell to them often express a preference for hardware produced domestically. Achronix expects many of chips will be used to companies that make gear used in applications like high-performance computing, networking, security and encryption.
In those kinds of products, government officials want to make sure where key components are made–and that they don’t include secret “back doors” or other features that could be exploited by foreign intelligence agencies. Such concerns may be fueled further by a growing number of reports about cyber attacks on U.S. institutions that some experts link to Asia and Europe.
Asked if the idea of domestic manufacturing is resonating with hardware makers, Achronix Chairman John Lofton Holt “absolutely.”
Blake added: “It comes up quite often with customers. They would like to source devices that are manufactured in the U.S. and they’ve never had that choice before.”
Not that Achronix, or Intel, are likely to exclusively use that selling point. Rival Globalfoundries has new manufacturing facilities near Albany, N.Y., that it has cited as a key selling point.
Besides Achronix, Intel has identified another programmable-chip startup, Tabula, as a customer of its foundry services. It also says it has other customers who choose not to be identified yet.
The chip giant is frequently asked–and declines to talk about–about rumors that it might one day serve larger customers, such as Apple. It has only made clear that it won’t serve companies that include its direct customers.
If Intel ever does want to serve high-volume customers, Achronix believes that it could. “They’ve become a real foundry,” says Holt.
National Farmers Union (NFU) Releases Analysis on COOL Compliance
in UncategorizedThe analysis essentially concluded that an effective way of complying with the WTO decision is to simply provide more information and more accurate details to consumers. It would not require producers or processors to collect additional information; it would merely require strengthening the regulations so that the information is provided to the consumer.
The WTO recently required the U.S Department of Agriculture (USDA) to adjust its rules requiring American retailers to label certain foods with the country (or countries) in which the animals are born, raised, or slaughtered. The WTO said that while the United States can require meat labeling, current U.S. COOL rules do not meet WTO standards. The WTO has given the United States until May 23, 2013 to bring its COOL rules into compliance.
“Based on the analysis, we stand in support of tightening U.S. COOL regulations,” said USCA President Jon Wooster. “USCA is proud of our U.S. raised products and remain committed to this issue, while continuing to vigorously advocate for U.S. cattle producers as well as every consumer’s right to information regarding where their meat products originate and are raised.”
COOL was passed as a part of the Farm Security and Rural Investment Act of 2002 and amended in the 2008 Farm Bill, going into effect in 2008, with regulations being put forward in 2009.
Click here to view the report.
National Farmers Union has been working since 1902 to protect and enhance the economic well-being and quality of life for family farmers, ranchers and rural communities through advocating grassroots-driven policy positions adopted by its membership.
Contact:
Melisa Augusto
202-314-3191
maugusto@nfudc.org
Dan McEvily
202-314-3104
dmcevily@nfudc.org
In Ohio and Beyond, President Obama Sees Model for an American Manufacturing Revival
in UncategorizedFebruary 14, 2013
Yet even before the facility is fully up and running, local business leaders say Youngstown, Ohio’s National Additive Manufacturing Innovation Institute (NAMII) is already spurring interest in a promising new technology known as “3D printing” that could bring new manufacturing jobs to the region.
They say the federal government is bringing together researchers and businesses that could make the region a hotbed of cutting-edge manufacturing.
“This is absolutely a net positive for the Youngstown area,” said Eric Planey, a vice president with the Youngstown Chamber of Commerce.
Also known as additive manufacturing, 3D printing creates solid objects from a digital model by laying down successive thin layers of material, rather than the traditional “subtractive” approach, in which objects are created by cutting them out of a solid chunk of metal or plastic.
The process has been used to build prototypes for 25 years, but now is making its way into regular production. Companies such as General Electric Co plan to use 3D printing to build lightweight aircraft parts, while dentists use it to create crowns in the space of an hour rather than two weeks.
The Obama administration has been promoting the idea of a manufacturing revival as labor-saving technology, rising costs overseas and cheap energy at home have prompted some manufacturers to bring factory jobs back from overseas.
Economists say the United States is long past the days when steel mills, auto plants and machine jobs boosted millions of unskilled Americans into the middle class. Manufacturing now represents 12 percent of the U.S. work force, down from 20 percent in 1979.
Youngstown has seen some manufacturing jobs return since its giant steel mills shut down in the 1970s, but increased automation means that they employ fewer people than they would have several decades ago.
A new pipe factory that would have needed 1,000 workers 25 years ago now employs 350, Planey said, while a General Motors assembly plant that employs 5,000 produces as many cars as it did when it employed 14,000 people.
Obama administration officials say manufacturing might not ever employ as many people as it once did, but the sector has broader benefits to the economy because it spurs research and development and boosts exports.
Taking a page from similar efforts in Germany, the administration last year picked Youngstown as the site of an “innovation institute” that would spread new manufacturing ideas among a wide range of businesses.
“You are using a facility as essentially like a teaching hospital,” Gene Sperling, the director of the White House National Economic Council, said on a conference call on Wednesday. “When there are developments in technology and research, you have the capacity to share them with smaller businesses.”
GOVERNMENT, BUSINESS, UNIVERSITIES
Government agencies such as the Department of Defense, the Department of Energy, NASA and the National Science Foundation put up $30 million for the effort, matched by $40 million from businesses such as Northrop Grumman Corp and universities including Carnegie Mellon.
In his State of the Union speech, Obama asked Congress to spend $1 billion to set up 14 more innovation centers across the nation. He said he would set up three facilities on his own, using existing funds, if lawmakers do not act.
Republicans, who have fought Obama’s stimulus for green technology, are unlikely to soften their stance on spending.
“Washington has a spending problem that threatens the prosperity of every child, every family, and every small business in America,” House of Representatives Speaker John Boehner, who ran an Ohio manufacturing firm before entering politics.
When the Youngstown center is fully up and running in the next several weeks, the 11,000 manufacturers in the region will get a chance to learn how 3D printing works and determine whether they want to invest in it themselves, said NAMII president Ralph Resnick.
Local workers also could learn how to operate the new equipment, and experts could ensure that the final product will meet existing quality standards.
The idea is to create enough of a body of expertise around the technology to turn the region into a hotbed of additive manufacturing, Resnick said.
“What we’re looking to work on is pervasive issues,” ones that affect many manufacturers, he said. “If we solve it, it’s all good for the community in general.”
Like other forms of “high tech” manufacturing, additive manufacturing doesn’t have much use for low-skilled workers doing repetitive tasks on an assembly line.
But if it catches on, it could create more demand for industrial designers, inventory managers and other skilled workers, said Todd Grimm, an industry consultant based in Kentucky. It also could spur a new wave of business startups as the barriers to entry are much lower than they are in traditional manufacturing, he said.
“The economy will benefit. To what extent? Will it even be measurable? Who knows – that’s for somebody with a crystal ball,” he said.
This Might Be The Year For A Pro-Domestic Manufacturing Policy Agenda In Congress
in UncategorizedFebruary, 2013
Murphy, the youngest member of the Senate at age 39, says he intends to be a leader on issues related to “Buy American” acquisition laws, currency manipulation, tax policies that promote investment in plants and equipment in the United States, and government investment in infrastructure that improves industrial competitiveness. “I have already reached out to other senators like Debbie Stabenow [D-Mich.] to join the pro-manufacturing efforts underway here in the Senate,” he says. “If we get together as a party and movement to push this new strategy there will be a lot more people than just me in the Senate and the House ready to follow.”
Murphy says the Republican Party could come around, too, on issues that favor domestic manufacturing. “There is an examination happening in the Republican Party as to why they hemorrhaged votes and seats in 2012,” says Murphy. “They would be smart to realize that one of the reasons they lost votes is they continue to be on the wrong end of the outsourcing debate. They are coming around on immigration because they recognize that they can’t win elections unless they change their tune on immigration. I think the same thing is true when it comes to manufacturing and outsourcing. If the Republicans continue to be identified as the supporters of outsourcing, they cannot win national elections. They certainly can’t win presidential elections in places like Ohio and Pennsylvania. And so I think that our hopes — to the extent that we have any hope of moving this agenda through the House — is that the Republican consultant class, who tend to dictate what the Republicans stand for in the House, will realize that they have to get on the other side of this debate, and fast.”
Other senators ran successful campaigns on similar pro U.S. manufacturing issues, notes Scott Paul, President of the Alliance for American Manufacturing. Among them were Democrats Tammy Baldwin of Wisconsin, Joe Donnelly of Indiana, Bob Casey of Pennsylvania, Sherrod Brown of Ohio and Kirsten Gillibrand of New York. Other Senate allies include Democratic Sens. Amy Klobuchar and Al Franken from Minnesota and Charles Schumer of New York, “and that’s just touching the tip of the iceberg,” says Paul. “In the Senate, there is an extraordinary amount of interest in pursuing” a domestic manufacturing agenda. “I am cautiously optimistic that in the Senate we can make some significant progress this year. Will the House listen? I don’t know, but we were able to extract some modest improvements in the Buy American laws in the infrastructure bill that passed the Republican-led House in the last Congress because it would have been too painful for some of their members to vote against it.”
Who is working against the pro-domestic manufacturing agenda? The organizations that represent multinational companies that have outsourced production, replies Paul. Identifying those outside groups “will shed some light on who on the inside [in Congress] is working against us,” he notes. On the issues of “Buy American” and cracking down on Chinese currency manipulation and unfair trade practices, it is the U.S. Chamber of Commerce and the Club for Growth. “You think of the senators and those in the House of Representatives who take their guidance from the Club for Growth and the Chamber and you have your answer.”
Even with those forces lined up against, the China currency bill was able to pass in the Senate during the last session with bipartisan support, despite the threat of a filibuster from Senate Minority Leader Mitch McConnell (R-Ky.). “There were enough Republicans including Lindsey Graham [R-S.C.], other southern senators and even [Sen.] Rob Portman [R-Ohio] who bucked him on this to support the bill,” says Paul. “It was the only bill to overcome a Mitch McConnell filibuster. We are making some progress, but they are baby steps, not giant steps. I am hoping in the Senate this year, we can make giant steps and broader shame some of the Republicans in the House to go along with this. There are rank and file House Republicans who support this agenda — not a lot of them, but enough to provide a majority.”
Sen. Murphy says backing a strong domestic manufacturing agenda is a good political strategy for Democrats. As the former member of the House of Representatives who created the Buy American Caucus, Murphy says that most voters realize that the U.S. economy cannot fully recover unless there is a healthy manufacturing sector. “This necessitates a new agenda,” he says. “I have always seen this issue as one of a few that allows Democrats to reach constituency groups that they might not traditionally reach. First and foremost, you are out there talking to small manufacturers and businesses which aren’t used to having Democrats coming into their factories and talk to them about what they need. Second, you are talking to a demographic of families associated with manufacturing trades that also aren’t traditionally Democratic constituencies.”
Murphy said he held a seat in the House of Representatives from a conservative district — one that had been Republican for the previous 24 years prior to his winning in 2006 — “in part to my speaking to them on the issue of making things here in America.”
The pro-domestic manufacturing issue was a big part of last year’s election campaign, notes Paul. “One of the most popular images in American political advertising in 2012 was the American factory,” he notes. “We have data to back that up.” There were almost one million political ads last year addressing issues related to jobs, companies that ship jobs overseas and the auto rescue. “There were over $45 million in ads in the presidential contest alone just on the China trade issue,” says Paul. “And in virtually every close race — Indiana, Ohio, Wisconsin, Pennsylvania and in Sen. Murphy’s race in Connecticut — one of the primary focus points for the victors was support for an American manufacturing policy.”
Even Obama pledged during the campaign to create one million manufacturing jobs over the next four years. “So now we have a metric to hold the Obama administration accountable,” says Paul. “It’s something that is easy to measure. So every month we will lay out how much or how little progress the President is making on his goal.”
Murphy says he will start a Buy American caucus in the Senate “because the U.S. government, year after year after year, is outsourcing taxpayer funded procurement to foreign countries,” he says.
Murphy would like to raise the requirement under the current law for agencies to buy 50 percent U.S. content to at least 60 percent and, better, 75 percent. He would get rid of
loopho
les that allow the U.S. government to buy foreign-made products if those products are being consumed outside the United States. And he would beef up the enforcement mechanism in the law by making it difficult for government agencies to approve waivers to the act.
As for free trade issue on Capitol Hill, Robert Borosage of the Campaign for America’s Future says the financial sector collapse in 2008 and subsequent recession may have broken the stronghold that multinational corporations and Wall Street have had on policymakers. “Corporate-defined free trade that does more to guarantee investment abroad than it does to guarantee jobs at home has been the centerpiece of the bipartisan consensus in this country for many decades,” says Borosage. The Democratic Party — directed by Wall Street and Clinton White House titan Robert Rubin — was fully on board with this strategy “even though it was widely opposed by broad majorities of Americans across both parties,” he notes. “One of the moments we are in given the collapse of that economic model is whether that broad public sentiment against that policy can start to gain traction in the Congress despite these very powerful forces lined up against it. What is interesting about the array of allies and the progress on the [last session’s] China currency bill that went further than many would have thought, is that we do have a moment here were popular opinion can finally start to be reflected in the halls of Congress in a way that it hasn’t in the past.”
Made in USA: We Are The 3%
in American Made, Made in USA, WalmartRead more
What Do American Manufacturers Owe Their Country?
in UncategorizedFebruary 5th, 2013
The moderator of the debate was Tamzin Booth, European business correspondent for The Economist, who introduced the topic by stating, “after the Great Recession, with high levels of unemployment persisting in rich countries, politicians are putting enormous pressure on firms to either keep operations at home or bring them back. The offshoring and outsourcing of work overseas have never been more unpopular. So strong is the backlash against firms which shift jobs abroad that many companies are choosing not to do it for fear of igniting a public outcry. And a “reshoring” trend, bringing factories home to America from China and elsewhere, is gathering pace and support from several American multinationals, including General Electric and Ford Motor Company.”
While Mr. Moser acknowledges that multinational corporations (MNCs) “have a responsibility to enhance shareholder return and obey relevant laws and regulations,” he believes that “MNCs also have a duty to maintain a strong presence in their country of origin,” which he defines “as investing, employing, manufacturing and sourcing at least in proportion to their sales in the origin country.”
He states, “This duty has two sources. The first is a quid pro quo for the special benefits that their charter provides. The second is based on understanding that a strong presence is almost always in the interest of their shareholders.”
In his pro argument for the first duty, Mr. Moser quotes Clyde Prestowitz: “Corporations are not created by the shareholders or the management. Rather they are created by the state. They are granted important privileges by the state (limited liability, eternal life, etc). They are granted these privileges because the state expects them to do something beneficial for the society that makes the grant. They may well provide benefits to other societies, but their main purpose is to provide benefits to the societies (not to the shareholders, not to management, but to the societies) that create them.”
This view is corroborated by a recent essay, “The American Corporation,” by Ralph Gomory and Richard Sylla, in which they provide a brief history of corporation formation in America. From 1790 to 1860, over 22,000 corporations were chartered under special legislative acts by states, and
several thousand more were chartered under general incorporation laws introduced in the 1840s and 1850s. These state granted charters were not perpetual and had to be renewed periodically, “with its “powers, responsibilities?including to the community?and basic governance provisions carefully specified.”
The essayists comment that general incorporation laws were the answer to the problem of corruption in legislative chartering, but created their own problems in the late 19th Century with the rise of “Robber Barons, both the business leaders who amassed great power and wealth in the rise of mass-production and mass-distribution industries, and the great financiers of Wall Street who collaborated with them.” The concentration of wealth and power in the hands of so few led to the passage of antitrust laws and corporate regulations at both the federal and state levels regulations in the 20th Century to prevent or rein in monopolies.
The stock market crash of 1929 and the Great Depression resulted in a multitude of “New Deal” reforms and regulations on the corporate and financial sectors to protect and inform stockholders and the general public.
Gomory and Sylla write that for decades after WWII, “the problem of corporate goals seemed under control,” and “the interests of managers, stockholders workers, consumers and society seemed well aligned” while the U. S. and the Soviet Union were fighting a Cold War.
As late as 1981, the U. S. Business Roundtable issued a statement recognizing the stewardship obligations of corporations to society: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” In addition, “The long-term viability of the corporation depends upon its responsibility to the society of which it is a part. And the well being of society depends upon profitable and responsible business enterprises.”
Establishing plants in another country in order to do business in that country and be closer to your customers is a reasonable business decision for many companies whose products are sold globally, such as Coca Cola and other food and beverage manufacturers. I concur with Mr. Moser’s statement. “We do not question multinational companies’ right to invest offshore.” However, it is another thing to transfer all or most of the manufacturing of your products to be sold mainly in the U. S. market to another country, at the cost of hundreds, if not thousands, of American jobs.
This brings us to Mr. Moser’s second pro argument to the question; namely, “a strong presence is almost always in the interest of their shareholders.” He states that his experience with the Reshoring Initiative’s free Total Cost of Ownership Estimator™ (TCO) has shown that “in their excessive focus on offshoring of manufacturing, many MNCs make suboptimal decisions, actually reducing the long-term return to their shareholders. Thus many MNCs will more fully maximise returns for shareholders if they maintain a stronger presence.”
This is because most MNCs do not accurately measure the “Total Cost of Ownership” or “landed costs” in making decisions regarding where to manufacture their products. They ignore the “hidden costs” of doing business offshore about which I have written extensively in my book , such as: quality problems, legal liabilities, currency fluctuations, travel expenses, difficulty in making design changes, time and effort to manage offshore contract, and cost of inventory.
In addition, Mr. Moser states that the behaviors of MNCs include:
in Am
erican economic, technological and military strength: risk of losing sales and assets in developing countries, especially when competing with local state-owned enterprises (SOEs); loss of the government-funded R&D that gives them a head start in many technologies; loss of strong origin-country defence and legal systems that protect the corporate charter; loss of “Pax Americana” that protects their trade around the world; and populist calls for anti-MNC political actions resulting from income inequality driven by a shriveling middle class.”
One important risk that Mr. Moser did not mention is the risk of theft of Intellectual Property by offshore manufacturers, especially in China. For many years, China has been doing this by reverse engineering, counterfeiting, and cyber espionage, but it has been made easier in the past two years by the mandatory technology transfer required by the Chinese government for corporations who set up plants in China.
In his con argument, Professor Bhagwati asserts that global sourcing and locating plants around the world has happened already, and “there is little point in tilting at reality.” He states, “Multinationals’ products, after all, can now hardly even be defined as American, French or any other nationality when their parts come from every corner of the world. All that matters, he argues, is that worldwide operations bring profits to the multinational, thereby benefiting the country in which it is headquartered. , “MNC investment abroad is good, not bad, for America unless it is a result of distorting tax policies that lead to overinvestment abroad. Asking MNCs to have a presence at home, and subsidising or forcing them under threat of penalties to do so, makes little sense unless you claim that this presence produces some externalities…the benefits to the MNC, and hence to America most likely, will accrue regardless of where the MNC does R&D, in Bangalore or Boston.”
In is rebuttal, Professor Bhagwati states, “Compelling an American MNC to retain a strong presence in America would be the wrong prescription no matter which of the two rationales you accept…Forcing them to produce at home when that makes them uncompetitive in world markets is surely the wrong prescription: it makes them uncompetitive in markets which today are fiercely competitive.
While I realize and have written about the fact that American manufacturers are under a disadvantage in dealing with countries like China that practice “predatory mercantilism,” it is my opinion that American multinational and national manufacturing corporations have more than a “duty to maintain a strong presence in their home countries.” As American citizens, we “pledge allegiance to the Flag of the United States of America, and to the Republic for which it stands, one Nation under God, indivisible, with liberty and justice for all.” Thus, we owe “allegiance” to our country, which is defined as “the loyalty of a citizen to his or her government.” Other synonyms are: fidelity, faithfulness, adherence, and devotion.
Obviously, if you are a loyal, faithful, devoted citizen of the United States this means that you take actions in your personal and business life to support your country and do not purposely take actions that may cause harm to your country. Moving a majority of manufacturing to other countries, especially China is doing harm to your country since China has a written plan to replace the United States as the world’s super power. Therefore, American multinational corporations and other American manufacturers owe allegiance to the United States of America by maintaining a strong presence in our country.
Michelle Nash-Hoff is the author of “Can American Manufacturing Be Saved? “
SKILLS GAP PUTS MANUFACTURING IN THE U.S.A. AT A COMPETITIVE DISADVANTAGE
in UncategorizedFebruary, 2013
Manufacturers are committed to a reformed immigration system that accounts for all aspects of legal immigration. As part of comprehensive reforms, manufacturers are asking Congress and the Administration to focus on addressing the lack of high-skilled workers, settling the issues regarding the undocumented population and establishing a commitment to strong legal enforcement.
“Talent and skill have no borders, and it is time that American immigration policy reflected that truth,” said Timmons. “Manufacturers need to be able to hire the right person with the right skills at the right time. Congress and the Administration must move forward with comprehensive immigration reform that allows manufacturers to meet their current and future workforce needs. The current system, unworthy of our ideals, is broken and holding the United States back. Without major reforms, we’ll be ceding talent to our competitors and turning away a future generation of entrepreneurs. Comprehensive reform will ensure that manufacturers have access to innovative workers who will help lead and grow our economy.
In addition to border security, structural reforms and verification issues, immigration reform must also address the millions of undocumented individuals who currently live in the United States. It is essential that we find a solution for these men, women and children living outside the system, and in doing so, we will build a stronger country. Members of Congress and President Obama must not waste this critical opportunity. Manufacturers look forward to working with policymakers toward a more vibrant economy that leads to more investment and jobs in America.”
A study released by the Partnership for a New American Economy found that more than 40 percent of Fortune 500 companies were either started by an immigrant or the child of an immigrant. American manufacturing enterprises founded by immigrants span all sectors, from technology, to steel, to chemicals, to medical devices, to many others. All told, major companies founded by immigrants or children of immigrants have an economic impact larger than all but two U.S. competitors—Japan and China—according to the report.
Approximately 600,000 manufacturing jobs remain unfilled due to an ongoing skills gap that has left employers unable to find appropriately skilled workers. As part of its efforts in support of comprehensive immigration reform, the NAM has partnered with businesses and education groups to form a coalition to address the need to fix America’s skilled worker crisis. As the debate moves forward, inSPIRE STEM USA will call on Congress to act on immigration reform to strengthen America’s workforce and education system both for today and tomorrow.
Made in USA Sees An Uptick
in UncategorizedFebruary, 2013
“We are just the first of many to come,” said Mr. Schiffer, who has committed $2.6 million to the project. “We’ll keep growing.”
The Made in USA movement is gaining steam, as retailers from Brooks Brothers to Walmart push to manufacture their wares in the United States to appeal to patriotic consumers and avoid costly overproduction as overseas labor and shipping costs rise. Surprisingly, the trend is playing out on a smaller scale in the city.
For an area that has seen apparel-making plummet—last year, on average, there were 14,900 apparel manufacturing workers in New York City, and two decades ago, there were more than 80,000, according to the New York State Department of Labor—new factories are welcome additions.
Mr. Schiffer’s factory, Keff NYC, has eight knitting machines (each costs $100,000), and he has ordered a dozen more. Though the company is currently making samples, Mr. Schiffer expects to engage in production of up to thousands of units. The company has already signed Abercrombie, Opening Ceremony and Burt’s Bees Baby as clients. It’s also producing uniform accessories, including hats, gloves and scarves, for the 2014 Winter Olympic Games.
Orders up by 30%Meanwhile, Stoll America, a 140-year-old knitting-machine seller that also makes apparel, opened an outpost on West 39th Street in 2009 and has been growing ever since. The company employs 21 workers, up from 12 four years ago, and has seen orders increase by 30% since 2010.
“Up until now, no one was around where designers could get samples done,” said Marcus Kirwald, product development manager. “They had to send them out, and there was lot of time and frustration involved.”
Brooks Brothers has made a name for itself in local production—it has manufactured its ties at a Long Island City, Queens-based factory for decades, for example, and operates two additional East Coast facilities—and is working to strengthen its capabilities. In its neckwear factory, which last year produced 1.5 million cravats, Brooks Brothers employs 300 workers, up 10% since early 2011. Three years ago, the brand overhauled its operations from assembly line to “module,” or manufacturing by team, to become more efficient, and it began producing apparel for other brands, such as Club Monaco and Jack Spade.
The clothier now promotes its American-made wares through a special section on its website and specific catalogs—recognizing that consumers are paying attention to the origin of their clothing. (Ralph Lauren was criticized last summer for making the U.S. Olympic team’s uniforms in China.)
“It’s really critical as part of our heritage and our culture that we maintain and actually increase American manufacturing,” said Paulette Garafalo, president of international and manufacturing at Brooks Brothers.
Asia’s rising middle class also has altered the landscape. Asian shoppers are beginning to covet U.S.-made brands, according to some designers. New York-based designer Patrik Ervell, who launched his eponymous menswear business seven years ago and manufactures 95% of his goods in the U.S., has noticed that buyers from Japan, China and South Korea are looking to stock only apparel manufactured in the U.S. If it doesn’t carry that label, they’re not interested, he noted. Currently, Asia represents 25% of his wholesale business.
Shifting pattern”People have started to fetishize this ‘Made in USA’ thing; it has an aura around it,” said Mr. Ervell, who sells to upscale stores such as Barneys New York and Opening Ceremony. “That period of churning stuff out of China and shipping it here is shifting.”
Domestic production is pricier—by as much as 40%—but the gap has been narrowing in recent years. In addition, manufacturing here means that retailers can get smaller batches of products into stores more quickly, reducing the need for end-of-season markdowns.
“It’s the unsold portion which becomes the albatross around their necks,” said Andy Jassin, head of retail consultancy Jassin Consulting Group. “It’s a matter of what’s efficient, and we’re beginning to see the efficiency of ‘Made in USA.’ “
And Americans appear increasingly willing to pay for it. About 75% of consumers said they would shell out more for American-made goods, up from 50% in 2010, according to America’s Research Group. Typically, U.S.-made products have been limited to small high-end designers, but now larger mainstream retailers, like Ohio-based Abercrombie, are investing in U.S. manufacturing.
“A lot of these stores are strategizing how they can do a ‘Made in USA’ product now because they think the country is ready for it,” said Mr. Schiffer.
Even so, manufacturing locally, whether in New York’s garment district or Garland, N.C.—where Brooks Brothers operates a factory—continues to present challenges. Most apparel sellers buy fabrics overseas, because Environmental Protection Agency rules for printing with dyes make local sourcing difficult. Meanwhile, when brands began outsourcing manufacturing and shuttering their local factories decades ago, younger workers, especially in the garment district, started abandoning the field for more lucrative industries.
So far, the return of some factories has not been enough to reverse the loss of manufacturing jobs in the city, where fashion jobs have steadily declined from 200,000 in the heyday of the 1960s.
“You don’t see the kids of the kids in the factories anymore,” said Alex Garfield, who has been in the apparel industry for more than two decades, currently as a founder of women’s pants brand Peace of Cloth. “A whole generation is missing.”
Still, the dynamic is shifting.
“Ten years ago, it was six times cheaper to manufacture in China,” said Ms. Garafalo. “Today, it is about three times less expensive, so the opportunity for better margins [there] is reducing.”
U.S. Congressman Cicilline (D-RI) Unveils The Make It In America Manufacturing Act
in Uncategorized“When they’re competing on a level playing field, American workers outperform competitors across the world,” said Cicilline. “Rhode Island’s economy was built on the strength of our manufacturing industry and that’s why I am pleased to introduce the Make It In America Manufacturing Act in order to help give manufacturers the resources they need to compete successfully, grow jobs, and get our state and national economy moving again.”
Senator Kirsten Gillibrand (D-NY), who has introduced the Senate version of the Make It In America Manufacturing Act, collaborated with Cicilline in recent months to build upon legislation they introduced in the 112th Congress. Cicilline also received feedback from Rhode Island constituents and the Brookings Institution on ways to enhance the manufacturing proposal.
If signed into law, the Make It In America Manufacturing Act would create a competitive incentive grant program, jointly administered through the Departments of Labor and Commerce. States or regional partnerships may apply for the program, and successful applicants will receive grant funds to help implement innovative Manufacturing Enhancement Strategies. Funds can be used to create a revolving loan fund, to issue low interest loans to manufacturers, or to provide grants to non-profits, including community colleges, helping manufacturers to:
“There is tremendous potential for job creation in the advanced manufacturing sector here in Rhode Island and throughout New England, and this innovative proposal would provide the kind of investment needed to support growth,” said James T. Brett, President & CEO of The New England Council. “The Council is proud to support Congressman Cicilline’s Make it in America Manufacturing Act and we look forward to working with him as he continues to fight for our region’s ongoing economic recovery.”
Cicilline, who was a leading advocate for the House Democratic Make It In America agenda during his first term in Congress, has pledged to continue working with colleagues to find commonsense solutions for the obstacles facing small business owners and manufacturers – especially those in Rhode Island.
Congressman Tim Ryan (D-OH), an original co-sponsor of the Make it in America Manufacturing Act and the Co-Chair of the House Manufacturing Caucus, added, “I am proud to support the Make it in America Manufacturing Act of 2013. This bill should receive the support of my colleagues from both parties as it seeks to maintain the revitalization of manufacturing that continues around the country. This competitive grant program will provide low-interest loans to small business and job training assistance to employees and community colleges, just the things we need in my District to keep our traditional manufacturers thriving and continue building our advanced manufacturing sector. This bill will also allow U.S. manufacturers to refine their processes, train both new and existing employees on the most updated machinery, and innovate their product line to stay ahead of the competition. This is what we need right now.”
The Make It In America Manufacturing Act has already received endorsements from several national groups, including the American Small Manufacturers Coalition, National Association of Counties, National Skills Coalition, United Steel Workers, AFL-CIO, and National Association of Development Organizations.
Woolrich Bringing Manufacturing Back to Pennsylvania
in UncategorizedCORPORATE ANNOUNCEMENT
At Woolrich, we have been actively manufacturing in the United States since our company’s founding in 1830. We proudly operate the oldest continually running mill in America, right here in the town of Woolrich.
As proud as we are of our manufacturing legacy, it’s true that we don’t make 100% of our products in the USA as we once did. As the global economy grew and matured over the last 20 years, many core mill customers took their woolen business overseas. To remain relevant, competitive and solvent, we made the same difficult choice.
In today’s world, the hard reality is that making things here is hard to do. But like our customers who embrace adventure every day, Woolrich is preparing to tackle a new challenge… bringing manufacturing back to Pennsylvania, one step at a time.
Toward this end, Woolrich is setting three significant domestic manufacturing goals: for our mill, for our customers, and for our brand.
1. To increase the yardage of wool produced in our woolen mill by 50% in 2013.
2. To introduce a 100% American-made apparel collection in Fall 2013.
3. To increase our American-made product offerings by 2015, ensuring that more than 50% of Woolrich Woolen garments proudly include American-made wool.
In the coming months, for Woolrich to set and accomplish these goals, it’s going to take more than a company commitment. It’s going to take support from our loyal customers as well.
At Woolrich, we are proud of our rich heritage, and eager to begin writing the next chapter of the American manufacturing story. Moreover, we are excited to work side by side with you to accomplish these worthwhile goals.
Sincerely,
Nicholas P. Brayton
President
Woolrich Inc.
Confronting the U.S. Advanced Manufacturing Skills Gap
in Skills GapThomas A. Hemphill, Waheeda Lillevik, and Mark J. Perry
January, 2013
In October 2012, the Boston Consulting Group (BCG) released a study, “Made in America, Again: Understanding the U.S. Manufacturing Skills Gap and How to Close It,” concluding that the existing manufacturing employee skills gap that has been widely reported is “more limited than many believe.” In contrast to several previous studies and widespread anecdotal evidence from the manufacturing sector, the BCG researchers found only limited evidence of a high-skilled manufacturing labor shortage nationwide — as only 5 of the 50 largest manufacturing centers are currently experiencing significant or severe gaps. High-skilled workers are generally considered to have technical training and industry certification, or an associate’s or bachelor’s degree in a manufacturing-related field.
However, in 102 out of 389 Metropolitan Statistical Areas (MSA), located primarily in the Southeast and Gulf Coast areas with relatively small manufacturing bases, manufacturers are facing skills gaps in specific job categories, such as machinists, welders, and industrial machine mechanics.
The BCG researchers also estimate that the high-skills gap in the United States translates to a shortage of only between 80,000 and 100,000 manufacturing employees, or about 8 percent of the nation’s high-skilled manufacturing labor force of 1.4 million workers. Those estimates differ significantly from other research that suggests a much greater shortage of skilled factory workers.
In this article, we discuss the various estimates of the current skilled worker shortage, consider the demographic trends that will affect the future skills gap, and explore the alternative approaches to closing the skills gap.
Do Skills Pay the Bills?
In its report, the BCG concludes that U.S. manufacturers are trying to hire high-skilled workers at “rock-bottom” wage rates, and that is not what it would characterize as a “skills gap.” As Adam Davidson asks in his recent New York Times Magazine article “Skills Don’t Pay the Bills”: Who wants to operate a highly sophisticated machine for $10 per hour? Answer: not a lot of people. As a result, says Davidson, there really isn’t a skills gap. Rather, it’s the unwillingness of manufacturers to pay higher wages that is causing the skilled worker shortage, which is a view that is consistent with the BCG report.
This recent expansion in manufacturing employment has played a critical role in supporting and strengthening the overall economy as it has emerged from the Great Recession of 2009. In fact, there is ample evidence that manufacturing has been at the forefront of the U.S. economic recovery over the last several years, and it’s generally expected that manufacturing will continue to play a key role in the future of the U.S. economy.
According to “Leadership Wanted: U.S. Public Opinions on Manufacturing,” a national survey of 1,000 Americans released in October 2012 and commissioned by Deloitte, a consulting and accounting firm, and the Manufacturing Institute, a Washington, D.C.–based affiliate of the National Association of Manufacturers (NAM), survey results reveal the importance of the manufacturing sector to the health of the U.S. economy.
For example, the national survey results show that 90 percent of respondents rated manufacturing as “important” or “very important” for their economic prosperity and America’s standard of living.
This position is supported by national industry sector data, as NAM reports that the manufacturing sector’s economic multiplier effect on the U.S. economy is significant, with every dollar in final sales of manufactured goods adding $1.48 in economic output from other sectors of the U.S. economy.
It is thus not surprising that when Americans were asked in the “Public Viewpoint on Manufacturing” survey what type of facility they would establish if given an opportunity to create 1,000 new jobs in their community, they placed manufacturing at the top of their lists, ahead of energy, technology, health care, and communications.
Advanced Manufacturing Skills Shortages
While BCG estimates a current shortage of between 80,000 and 100,000 skilled manufacturing workers nationwide, manufacturers themselves report a much higher skilled labor deficiency.
In a September 2011 report, “Boiling Point? The Skills Gap in U.S. Manufacturing,” commissioned by Deloitte and the Manufacturing Institute, an online survey of 1,123 U.S. manufacturing executives across 50 states was conducted, and 83 percent of American manufacturers reported a moderate or severe shortage of skilled workers that translates into approximately 600,000 skilled manufacturing positions that are currently unfilled.
In the not-so-distant long term, the manufacturing skills gap is forecasted to worsen. While the BCG and the Manufacturing Institute differ on the current number of unfilled positions, they both agree that certain demographic realities will contribute to a much greater skilled worker shortage in the future.
ted State
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Even with a limited skills gap today, the BCG study forecasts a future high-skills gap in manufacturing that could approach 875,000 machinists, welders, industrial engineers, and industrial machinery mechanics by 2020. Nevertheless, whether on the high end or low end of the estimated current manufacturing high-skills gap, in a 21st-century American economy increasingly built on capital-intensive, cutting-edge technology-based “advanced manufacturing,” high-skilled employees are the key to a successful enterprise.
Looking forward, there is general consensus by both BCG and the manufacturing industry that any skilled worker shortages today will be eclipsed by much larger challenges in the coming decade because of the pending wave of retirements.
Do We Have a “Skills Gap”?
How do we reconcile the fact that NAM is reporting a skilled worker shortage of 600,000, while the BCG’s estimate of the gap is only 80,000–100,000 workers, and Adam Davidson dismissively refers to the current situation as a “so-called skills gap” and a “fake skills gap”?
To start, just because workers may not want to train for a job that has a low rate of pay does not necessarily mean that a real skills gap does not exist. The discussion should not focus so much on whether the worker shortage is 80,000 or 600,000, but rather on identifying the root cause of the skills gap, large or small, and how to address it. Concerns about finding just the “right” labor for advanced manufacturing in the United States is a much more complex issue than has been presented in the popular media. As referenced above, both BCG and NAM have identified current and projected shortfalls in the supply of skilled manufacturing labor, even though they disagree on the magnitude of the deficiency. And the current general demographic shift of the workforce will significantly impact the manufacturing sector in the future due to the aging workforce, a reality that even the BCG clearly acknowledges.
Davidson asserts that manufacturers are only willing to pay their skilled workers $10 per hour, and it is employer stinginess that is responsible for the “so-called skills gap.” In response to that claim, Paul Downs (proprietor of Philadelphia-based Paul Downs Cabinetmakers) wrote in a New York Times blog post, “Why Training Workers Costs More Than You Think,” that his experience as a factory owner was much different than Davidson’s narrative. In fact, Downs personally prefers to pay his skilled workers at a higher rate, essentially saying that you “get what you pay for” in terms of reliable and valuable workers.
The solution to closing the skills gap lies in between these two alternatives – employers’ willingness to pay competitive wages and assume some of the employee training costs, and job-seekers’ willingness to pay for an education and acquire the marketable skills in demand by manufacturers.
Many of the barriers to developing a healthy pipeline of dedicated, skilled workers for the manufacturing sector lie in perceptions. Employers who view labor as capital – and capital that is worth investing in – will view money spent to train their employees as an investment rather than an expense, as Downs suggests. However, he is correct that training requires substantial and possibly prohibitive costs to employers; this is where job seekers must be willing to assume part of the training costs as well by enrolling in training programs at their own expense.
The Manufacturing Institute has developed partnerships with high schools, community colleges, and national accrediting bodies to ramp up the pool of skilled labor – but this isn’t happening fast enough for the manufacturers currently experiencing labor shortages.
Recognizing this, the Automation Federation has identified a set of competencies that focus on building general skills, such as personal effectiveness and academic competencies. Building off these competencies, the Manufacturing Institute developed a fast-track program called “Right Skills Now,” which incorporates “stackable credentials.” This program comprises college course study for 18 weeks (in specific high-skilled manufacturing areas) and 6 weeks of a paid internship.
Two key outcomes of these initiatives are evident: training is an essential and unavoidable cost to both job seekers and manufacturers, and there is an urgent need to deal with the current and anticipated shortfall of skilled manufacturing workers. Clearly both manufacturers and educators have recognized that there is a skills gap and are on the path to developing programs to minimize it.
What to Do?
It is apparent that some mixture of employers’ and employees’ perspectives is needed. Companies want to have workers who are proficient in general skills – math, science, communication, reliability – and it is incumbent upon the job candidates to obtain these skills at their own initiative and expense. However, more job- and firm-specific skills can be taught to these workers through time-limited internships/apprenticeships in conjunction with formal skills-related educational programs, thus easing the burden on employers to field these costs and allowing employers to observe the performance of potential employees. In the longer term, employers will need to offer an appropriate market rate of pay to retain quality employees, ensuring that they reap the benefits of their personal investment.
The October 2012 Deloitte–Manufacturing Institute survey results give credence to this perception. According to survey results, when it comes to choosing manufacturing as a career choice, only 35 percent of survey respondents would encourage their children to pursue a career in the manufacturing sector, ranking manufacturing only fifth among seven key industries listed. This perception has not yet changed sufficiently to encourage people to seriously consider skilled manufacturing as a viable career choice, enough so that they would invest in the education and training required for advanced manufacturing careers.
Manufacturing’s “image problem” may also be contributing to the skills gap. The correction of current misperceptions of U.S. manufacturing needs to be broadcast to a wider audience, especially to those individuals who can positively influence the critical demographic of high school–age potential manufacturing employees. While the Manufacturing Institute has initiated “Dream It. Do It,” a national career awareness and recruitment program to “engage, educate, and employ” the next generation of skilled manufacturing employees, the manufacturing sector faces formidable obstacles.
The Challenges Ahead
At the same time that some manufacturers are struggling to find skilled workers, there has been a recent trend of U.S. companies “reshoring” manufacturing output and jobs back to the United States from overseas, due to a number of favorable factors that have made domestic production increasingly cost-competitive.
In a recent article titled “The Insourcing Boom,” author Charles Fishman outlines five trends that have lowered the cost of manufacturing in the United States: rising oil prices, falling natural gas prices, rising wages in China, wage concessions by unions, and increasing U.S. labor productivity. As those five factors have combined to significantly lower U.S. manufacturing costs, many companies like GE have started increasing production at domestic locations, which has been accompanied by an increased demand for U.S. factory workers.
We could be facing a situation in the future where U.S. manufacturers will be trying to bring millions of factory jobs back to the United States at the same time that the industry is experiencing a wave of retirements from the aging manufacturing workforce. In that situation, the manufacturing skills gap will produce an even greater challenge for American manufacturers, and in fact, will increase the urgency of the situation.
Although there are some differences in estimates of the magnitude of the current skilled worker shortage in manufacturing, there is general consensus that a skills gap exists and that it will likely worsen in the near future. Fortunately, the issue of the skills gap is generating a fair amount of national media and industry attention, which is bringing some well-deserved debate to an important topic that is crucial to a key sector of the U.S. economy.
The future of America’s advanced manufacturing sector looks very promising overall, especially if the reshoring/insourcing trend continues and manufacturers can find skilled workers for the factory floor of the 21st century. Now that the manufacturing sector and the education establishment are working together to confront the advanced manufacturing skills gap and train skilled workers for advanced manufacturing, we are hopefully on a path toward resolving the current skilled worker shortage.
Thomas A. Hemphill is an associate professor of strategy, innovation, and public policy at the University of Michigan’s Flint campus. Waheeda Lillevik is an assistant professor of human resources and management at the College of New Jersey. Mark Perry is a scholar at the American Enterprise Institute and a professor of economics at the University of Michigan’s Flint campus.
American Manufacturing Bouncing Back
in UncategorizedJanuary 2013
The Manufacturers Alliance for Productivity and Innovation, the industry’s trade group, predicts that manufacturing output will rise 2% this year, 3.3% in 2014 and 4.2% in 2015 — a modest rebound, but headed in the right direction. Some industry experts see decidedly better days after that, and talk of a renaissance in U.S. manufacturing fills the air.
The sweeping structural changes that manufacturing companies have undergone are putting U.S. factories back in the game. Over the past few years, U.S. productivity has improved, wages have remained flat, and automation has replaced many human workers. Labor unions have lost much of their clout. Other costs have fallen sharply: Interest rates are low. Oil and gas supplies have mushroomed, while energy prices, particularly for natural gas, have plunged. And the dollar’s value has declined, making U.S. exports less expensive and foreign imports more costly to buy.
At the same time, rising wages in China, combined with the spread of robotics here at home, are eroding the attractiveness of outsourcing production to low-wage countries. The nuclear disaster in Fukushima, Japan, gave companies pause about global supply chains. The upshot: A growing number of U.S. firms have begun to bring production home.
“The U.S. has gotten more competitive,” says Harold L. Sirkin, a Boston Consulting Group analyst who watches manufacturing. He predicts the U.S. will create up to 1 million manufacturing jobs over the next 10 years. “The U.S. will become a manufacturing center, and not just for American companies,” he says.
Sirkin foresees visible gains in overall manufacturing output in industries such as computers and electronics, appliances and furniture, chemicals, fabricated metals, plastics and rubber, and automobiles and automotive parts. “We’re really seeing signs of a turnaround,” he says.
Even so, most analysts expect that manufacturing won’t take off for another couple of years, at least. The U.S. economic recovery continues to be anemic, without enough oomph to propel factories at full speed. And the global economy is lagging further, so manufacturers can’t count on exports to spur production at home.
“The missing ingredient is demand. Everything else is falling into place for manufacturing,” says Mike Montgomery, an economist at IHS Global Insight in Lexington, Massachusetts. “The structural issues that manufacturing faced before have almost entirely sorted themselves out. But demand isn’t growing fast enough.”
And the golden days of the 1960s and early 1970s aren’t likely to come back anytime soon. The resurgence will be modest. Large multinationals will continued to retain large plants abroad. At best, the gains will replace much of the employment losses incurred during the recession.
“You can say that the worst is over for American manufacturing,” says Barry P. Bosworth, a Brookings Institution economist who keeps tabs on manufacturing. “The loss in factories will be slower than it’s been over the past three decades because we no longer have to shed low-skill jobs and increase our efficiency in order to compete.”
Even so, while U.S. manufacturing has come a long way in adjusting to the post-1970s world, it still faces some daunting challenges. Already, factories are having difficulty finding skilled workers for today’s manufacturing jobs, and the problem will intensify as the work force ages. So far, the U.S. has done little to address it.
And while innovation in this country is going strong in a few high-profile scientific fields, such as nanotechnology and computer science, translating that into manufacturing is going more slowly than economists say is needed. Labor Department figures show, for example, that the number of new start-up firms has been declining steadily since 1998.
Made in America: The Next Boom
in UncategorizedJANUARY 2013
After decades of outsourcing, however, the U.S. is quietly enjoying a manufacturing revival, and companies like Apple (ticker: AAPL), Caterpillar (CAT), Ford Motor (F),General Electric (GE), and Whirlpool (WHR) are making more of their goods on American soil again. It isn’t just U.S. companies that are drawn to our cheap energy, weak dollar, and stagnant wages. Samsung Electronics (005930.Korea) plans a $4 billion semiconductor plant in Texas, Airbus SAS is building a factory in Alabama, and Toyota (TM) wants to export minivans made in Indiana to Asia.
The Rust Belt owes its new shine to many factors, including rising wages and industrial-land costs in Asia. But none is bigger than the U.S. energy boom. Thanks to a head start in extracting oil and gas from shales, North America now produces far more natural gas than any other continent. Unlike oil, gas isn’t easily transported across oceans, and a result is some of the world’s cheapest energy within our reach: Natural gas here costs $3.55 per million British thermal units, versus roughly $12 in Europe and $16 in Japan. Cheap energy not only reduces our trade deficit and our addiction to Middle East oil, it also makes our factories more competitive globally — a boon for a country that had gone from exporting American goods to exporting American jobs.
The biggest beneficiaries are energy-guzzling companies like chemical producers and steelmakers, and Barron’s has identified eight stocks that should prosper in our gas-fueled manufacturing upswing. They are Southwestern Energy, LyondellBasell Industries, Nucor, Dover, Calpine, CF Industries, Williams, and Union Pacific. But any glow will also rub off on regional lenders, home builders, and local small businesses. “The U.S. is the Saudi Arabia of natural gas,” declares Nancy Lazar, co-head of the New York research firm International Strategy & Investment. “And Middle America is my favorite emerging market.”
Our energy boom got cracking with fracking, a controversial process in which pressurized fluids are pumped through rock formations, often a mile or more under the ground, to extract oil and gas. Critics condemn fracking, which they contend causes environmental harm, but even they agree that it’s led to an abundance of cheap gas. Over the past six years, U.S. production of petroleum and natural gas has jumped from 15 million barrels of oil-equivalent a day to 20.1 million, a 20-year high. Over the same period, imports have fallen from 14 million barrels a day to below eight million, a 25-year low.
It’s a sign of the times: Graduates from the South Dakota School of Mines & Technology — acceptance rate: 88%; mascot: Grubby the Miner — now command a median starting salary 16% higher than that of Yalies.
By 2020, the U.S. will become the world’s biggest oil producer, says the International Energy Agency. By 2025, North America will be a net energy exporter, predicts ExxonMobil (XOM).
That edge should remain ours for decades. “It isn’t just the huge reserves we have underground,” says Tim Parker, who manages T. Rowe Price’s natural-resource stock portfolios. “No one else has our predictable cocktail of infrastructure already in place, know-how, a relative abundance of water, and a favorable royalty regime that give landowners a stake in the exploration game.” Europe, for instance, is averse to fracking and has little infrastructure; Japan has hardly any shales; and while China has vast reserves, only shales nudging the Yangtze River have enough water for fracking.
Of course, an especially frigid winter could send gas prices soaring, but any such spike should be temporary. Given our expanding reserves and record inventory, commodity strategists expect U.S. natural gas to stay between $3 and $5 per million BTUs for years — well below prices abroad.
CHEAP GAS ISN’T THE ONLY booster in our tank. In the decade since China joined the World Trade Organization in 2001, that nation has become Earth’s low-cost factory. But wages and benefits there are rising 15% to 20% a year, while they’re stagnant here. Despite Beijing’s efforts to hold it down, the yuan has gained 33% against the dollar since 2005. Industrial land averages $10.22 a square foot across China, but rises to $11.15 in the coastal city of Ningbo and $21 in Shenzhen — compared with $1.30 to $4.65 in Tennessee and North Carolina. “Within five years, the total cost of producing many products will be only about 10% to 15% less in Chinese coastal cities than in parts of the U.S. where factories are likely to be built,” says Hal Sirkin, a senior partner at Boston Consulting Group. Add duties and shipping, and the cost gap shrinks further.
Location-scouting manufacturers also are looking beyond mere costs. Moving part of their supply chains closer to the U.S. — still the world’s biggest consumer market — helps companies react faster to changes and also speeds innovation, says Gary Pisano, a Harvard Business School professor. Adds Robert McCutcheon, who heads PricewaterhouseCoopers’ U.S. industrials practice: “You protect not just the intellectual property of your products, but your processes as well.”
Companies, of course, won’t completely shutter overseas factories. U.S. corporate taxes are still high, compared with many other countries’, and there’s a limit to how many jobs will return, given advances in automation and productivity. But BCG’s Sirkin conservatively estimates that 2.5 million to five million manufacturing positions will be added by 2020, which could shave two to three percentage points from our unemployment rate, now near 7.8%. We’ll also expand exports, at the expense of higher-cost developed rivals, such as Germany and Japan. And U.S. ports stand ready and idle, operating at just 54% of capacity, well below 59% in Europe, 67% in Latin America, and 76% in Southeast Asia.
Busier factories would help the entire country. For every dollar spent on manufacturing, another $1.48 is added to the economy, says the National Association of Manufacturers. Another bonus: Manufacturers account for two-thirds of what the private sector spends on research and development.
And we’ve only just begun: Abundant gas and a weak dollar are long-term trends, and U.S. wages should behave until unemployment falls well below 6%, says Jeffrey Korzenik, chief investment strategist at Fifth Third Private Bank. “Offshoring had gone on for decades, but the re-shoring trend is only in year two or three.”
Here are eight stocks that should benefit:
Southwestern Energy (SWN)
Cheap energy is a boon for manufacturers, but a curse for exploration companies, and investors are shunning the producers most exposed to slumping gas prices. With 99% of Southwestern’s production and reserves in natural gas, you’d think the Houston company’s managers would be anxiously sweating over prices near decade lows.
But they aren’t. That’s because Southwestern is a highly efficient, low-cost producer. It works its 926,000 acres in the Fayetteville shale with operational aplomb, using dense wells, some of its own rigs, and vertically integrated services. The company has another 187,000 acres in the Marcellus shale. At $34, its shares trade at a small premium to its gassy peers but still a discount to its net asset value.
Ken Settles, who co-manages the RS Global Natural Resources Fund, expects gas prices to hit $5 to $6 eventually. “But the benefit of focusing on a low-cost producer is that, even with gas prices below sustainable long-term levels, Southwestern’s assets are still profitable and creating value for its owners.”
Southwestern plans to increase 2013 production by 11% to 13%, and analysts see its per-share profit climbing 19% this year. Earnings will grow even more if natural-gas prices rally, but you won’t sweat waiting for that to happen.
LyondellBasell Industries (LYB)
Chemical makers guzzle energy and also rely on byproducts from oil and gas purification — stuff like ethane, butane, and propane — for raw materials. So the shale boom delivers a double blessing of cheap feedstock and energy. In fact, PwC thinks that we might start seeing more plastic-based substitutes for materials like metal, glass, or wood. That’s good news for diversified specialty-chemical giants like DuPont (DD), and also Dow Chemical (DOW), which is investing $4 billion to boost production and build an ethylene plant in Texas that could hire 2,000 workers.
Still, Tim Parker of T. Rowe Price says that the narrower profit margins of more commoditized base-chemical companies might see a bigger boost from the new world order of cheaper feedstock and energy. His pick: LyondellBasell.
Since the Rotterdam-based company emerged from bankruptcy in April 2010, its New York-listed shares have climbed 184%. The shares, recently trading at $62, fetch 10.7 times 2013 profits. LyondellBasell’s management team is boosting earnings and returning capital to shareholders through share buybacks and dividends. The stock yields 2.6%. And net profit margins of 5.6% trump the 3.7% average of its peers. With new capacity, cheap feedstock and $14 billion in free cash flow, it can earn $10 a share by 2016 and become a $100 stock, Deutsche Bank analyst David Begleiter maintains.
Nucor (NUE)
Steel-making isn’t just another energy-intensive business. Steel pipes and products are integral to energy exploration and transportation, not to mention manufacturing and construction. With 99% of its revenue earned in America, Nucor, the largest U.S. minimill operator and metals recycler, is well-hitched to that energy and manufacturing boom.
The steel industry is vexed by excess capacity, and its volatile stocks surge or slide with temperamental economic data. So it helps that Nucor is more defensive than its peers. Wells Fargo steel analyst Sam Dubinsky favors it over the long haul, “due to its lean cost structure and product diversity, both of which have resulted in earnings at the high head of the peer group.” Nucor also is most levered to the bottoming construction market. A healthy balance sheet and a 3.1% dividend yield further burnish the appeal of its stock, recently at $47.78.
Dover (DOV)
Is the U.S. really ready to make more things again? The average age of our manufacturing plants is 15.5 years, while our equipment has been around almost six years. Both are near five-decade highs. “Old equipment and manufacturing plants suggest the need for a large replacement cycle,” writes ISI. Over the next five years, the research firm expects capital expenditure’s share of the economy to rise from 10.2% to 14%, putting it near its early 1980s peak. That’s good news for Dover. The conglomerate makes a vast array of industrial products — from refrigeration systems and specialty pumps to drill bits and bar-code equipment — making it a proxy for our manufacturing boomlet.
Calpine (CPN)
Calpine is the largest independent U.S. producer of gas-powered electricity, and runs some of the newest, most efficient plants. Just six years ago, nearly half the nation’s power came from coal. But gas’ share has swiftly risen from a fifth to a third, while coal’s has waned.
The ongoing switch to cleaner natural-gas-generated electricity is one reason whyBarron’s has been bullish about the stock (see “Calpine Gets Ready to Light Up,”July 23, 2012). The company also has unused capacity that puts it in the driver’s seat as utilities replace decades-old coal plants.
At first blush, that advantage seems well reflected in the shares, which, at $19, fetch 27.6 times 2013 profit estimates of 69 cents a share. But that seemingly lofty multiple is below its median over the past five years, and Calpine is generating more than $1 a share in free cash flow and continuing to pay down debt. “When power prices are low, Calpine benefits by taking market share from less-efficient producers,” says MacKenzie Davis, who co-manages the RS Global Natural Resources Fund. “But it also benefits if power prices rise, since margins and cash flow will improve.”
Energy can account for nearly 70% of the cost of producing fertilizer, and Jack Ablin, BMO Private Bank’s chief investment officer, singles out CF Industries as a big beneficiary of plentiful natural gas.
The company, which produces nitrogen and phosphate fertilizers, earns 85% of its revenue in the U.S. Shares of Deerfield, Ill.-based CF, at $226, have outrun their peers and climbed 73% over the past two years, the latest leg coming as drought sent corn and soybean prices soaring. Fearful that cyclical earnings have peaked, analysts are downgrading the stock, and investors fret that margins and share buybacks will suffer as management spends $3.8 billion to expand its nitrogen capacity.
But any pullback is an opportunity for long-term investors. Cheap gas costs should keep operating margins near a record 50.1%. Tight corn supplies, low water levels in the Mississippi, and a still-dry Corn Belt should support grain and fertilizer prices, and CF’s investment-grade credit rating and low debt let it borrow money cheaply should it need to. Its stock trades at just 8.2 times what CF earned over the past 12 months, well below the 12.3 times median since it went public in 2005.
Williams (WMB)
So why aren’t American drivers enjoying a bigger windfall at the pump? For one thing, global demand dictates gasoline prices. After decades of ferrying imported oil, our infrastructure also needs to be re-oriented toward redistributing domestically produ
ced na
tural gas. That benefits master limited partnerships that operate pipelines, and for investors who want to avoid MLPs’ complex tax-filing regimes, their parent companies.
Williams gathers and transports natural gas, and owns 78% of its namesake MLP, Williams Partners (WPZ). It has diverse assets, pays a 3.9% yield, and thrives as demand increases for natural-gas processing and infrastructure.
Williams Partners, which sports a 6.6% yield, fell 22%. Shares of its parent also struggled after it issued stock to help finance a complicated $2.25 billion investment in privately held Access Midstream Partners and the MLP it controls.
Still, the deal boosts Williams’ position in the Utica and Marcellus shales, and adds steady fee income that tempers Williams’ exposure to fluctuating commodity prices. Investors fret that Williams, which trades at $34, may have to raise more money, but cash flow of about $1.6 billion this year exceeds the adjusted net income of $816 million that Wall Street expects and should more than cover payouts, letting Williams deliver on its promise to increase dividends at a 20% annual rate through 2015.
Union Pacific (UNP)
All manufactured goods must move from the factories in which they’re made to somewhere else. Kansas City Southern (KSU), which has a unique North-South network linking the Midwest with Mexico, could benefit from any spillover of manufacturing south of our border. But the king of rail remains Union Pacific.
Spawned 150 years ago, after Abraham Lincoln signed the Pacific Railway Act, Union Pacific’s dense network blankets the map west of the Mississippi. Stephens’ transportation analyst Brad Delco flags Union Pacific as one of the rail stocks most exposed to energy-intensive groups like autos, chemicals, and steel. It hugs the Gulf Coast, has the largest U.S. chemical franchise among rail carriers, and hogs 75% of the western U.S. traffic for assembled autos and parts. Its relative absence along the East Coast further shields it from coal’s dying embers.
Union Pacific shares have run up 44%, to $133, over the past two years, nearly twice as much as the rail group has. But the stock trades at 14 times projected profits, a small premium to its peers, and no higher than its own historical average. Management has lifted operating margins to a decade-high 36%. The stock boasts a 2.1% yield, and the company has paid a dividend every year since 1899, when the steam engine propelled the U.S. to its first industrial boom. The rail giant’s in great shape for the next one
Made in U.S.A. Supplier Summit Coming Soon
in UncategorizedBoth appointments were a little lost in the shuffle as the new responsibilities for Gloeckler and Hall were listed at the bottom of a memo that included announcements about 15 other merchandising executives. They aren’t lost in the shuffle anymore following the announcement earlier this week by Walmart U.S. president and CEO Bill Simon that Walmart plans to purchase an additional $50 billion worth of merchandise from U.S. suppliers during the next five years.
Gloeckler and Hall now figure prominently into those plans and accompanied Simon to the National Retail Federation convention where he was a featured speaker on Tuesday morning when the purchasing initiative was announced in front of several thousand people.
“Walmart and Sam’s Club will grow U.S. manufacturing on two fronts: by increasing what we already buy here – in categories like sporting goods, apparel basics, storage products, games, and paper products. And by helping on-shore U.S. production in high potential areas like textiles, furniture, pet supplies, some outdoor categories, and higher end appliances,” Simon said.
He indicated the company will help convene a manufacturing summit this summer to bring the retail industry together and promote domestic sourcing more broadly.
“Instead of working on these issues separately, we will accelerate these changes by working together,” Simon told the NRF attendees. “And when we do, it will benefit all of us. Any new factory can sell to any of us. Every investment made in partnership with one of us lowers the cost for all of us. Every new hire at one of our suppliers is a new customer who might come through your doors or ours.”
While Walmart has committed to $50 billion in new domestic manufacturing, he suggested the broader retail industry could set its sights at $500 billion in purchases over a 10 year period. Such a commitment would give American manufacturers the confidence they need to invest in domestic manufacturing at a time when rising energy costs and overseas labor rates are causing suppliers to give domestic manufacturing a second look.
Simon contends suppliers just need a nudge. So in addition to the $50 billion commitment, Walmart plans to execute longer term purchase agreements to give company’s greater visibility into demand for their goods.
Silicon Valley Plant Named as Apple Manufacturer
in UncategorizedTaiwan-based Quanta was listed as operating Macintosh computer and iPod MP3 player assembly plants in China.
Cook, in a pair of interviews given in December, said one line of Mac computers will be made exclusively in the United States, but did not say which one.
Asked why Apple would not move out of China entirely and manufacture everything in the United States, Cook told NBC, “It’s not so much about price, it’s about the skills.”
Cook also told the broadcaster that he hopes the new project will help spur other US firms to bring manufacturing back home.
“The consumer electronics world was really never here,” he said. “It’s a matter of starting it here.”
Apple Says China Agent Forged Papers for Underage Workers
in UncategorizedJanuary 25, 2013
“Underage labor is a subject no company wants to be associated with, so as a result I don’t believe it gets the attention it deserves, and as a result it doesn’t get fixed like it should,” Jeff Williams, Cupertino, California-based Apple’s senior vice president of operations, said in an interview.
A total of 158 facilities globally lacked proper procedures or didn’t perform adequate audits of their own suppliers, according to the report.
Forged Papers
The investigation found that Shenzhen Quanshun Human Resources Developing Co., a Shenzhen-based labor broker with an office in Henan, had cooperated with families to forge documents allowing the children to get past age-verification procedures, according to Apple. Shenzhen Quanshun’s manager Wu Yong denied involvement with the manufacturer named in the report.
Guangdong Real Faith Pingzhou Electronics Co., which supplied circuit-board components, had its business with Apple terminated after an audit in January last year found underage workers supplied by Shenzhen Quanshun, according to the report. Wan Xiaocheng, deputy general manager at the supplier’s parent Guangdong Real Faith Enterprises Group Co. declined to comment.
“Given the high turnover rate in the factories and the production pressure in the peak season, the factories may not strictly comply with labor laws and the code of conduct,” said Debby Chan, a spokeswoman for Hong Kong-based Students and Scholars Against Corporate Misbehavior.
Apple decided to name the companies to highlight the systemic problem of labor agencies recruiting underage workers, Williams said. The company also is identifying those agents to its suppliers.
“Most companies, they either don’t report on it at all, or they say they look for it and found none, or they obscure the data in some way,” Williams said. “If they’re not finding it, they’re not looking hard enough.”
Apple outlined the findings of 393 audits covering 1.5 million workers in 14 countries. Twenty-eight inspections were surprise visits, it said in the report. The number of inspections in 2012 was up 72 percent from 229 the year before.
The company tracked work hours for 1 million workers, and suppliers boosted the compliance rate for the maximum 60-hour work week to 92 percent from 38 percent in last year’s report. The average work week was less than 50 hours, it said.
Overtime Demand
People falsifying their own documents to gain employment and others seeking excessive overtime hours remain challenges for Foxconn, said Louis Woo, a spokesman for the Taipei-based company. Many employees want to work longer and may leave if they don’t get enough hours, he said.
“If we do not provide sufficient overtime hours, then we become uncompetitive in the marketplace for attracting workers despite the fact that our basic wage is higher,” Woo said.
Apple Chief Executive Officer Tim Cook, who was previously head of operations, helped design the network of suppliers and manufacturers that built the more than 80 million iPhones and 32 million iPads sold in its last fiscal year. The company had profit of almost $42 billion on sales of $156.5 billion last year.
Raw Materials
Apple didn’t disclose information about the source of raw materials for its products. While Apple said it’s taking steps to prevent the use of minerals from “conflict” areas, such as Democratic Republic of Congo, the report doesn’t disclose the sources for any of the four metals tracked by Apple in its supply chain — tin, tungsten, tantalum and gold — nor does it disclose the mines and refineries used by suppliers.
Cook said in an interview with Bloomberg Businessweek in December that “we’re back to the mines. We’re going all the way, not just at the first layer. And in addition to that, we’ve chosen to be incredibly transparent with it.”
Tin is the most widely used metal because it becomes the solder that binds components together in iPads, iPhones and other devices. A Bloomberg Businessweek and Bloomberg News investigation published in August traced solder used by Apple suppliers, including Foxconn Technology Group, and other top electronics manufacturers to Indonesia’s Bangka Island. Tin miners in those areas were found to be buried alive at a rate of almost one a week last year.
To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
Apple Drops Chinese Supplier For Using Underage Labor
in UncategorizedJanuary 25, 2013
Apple says it “didn’t stop there.” It said it also discovered that one of the region’s labor agencies had conspired with the manufacturer, providing children to them and helping forge age-verification documents. Apple said in its report that it alerted the provincial government, which fined the agency and suspended its business license.
“The children were returned to their families, and PZ was required to pay expenses to facilitate their successful return,” Apple says in the report.
In an interview with Bloomberg, Apple’s Senior Vice President of Operations, Jeff Williams, said child labor was being used more than companies care to admit. “Most companies, they either don’t report on it at all, or they say they look for it and found none, or they obscure the data in some way,” Williams told Bloomberg. “If they’re not finding it, they’re not looking hard enough.”
ABC News’ Bill Weir visited the factory of Apple’s Foxconn supplier last year and did not see any underage workers. “But while we looked hard for the kind of underage and maimed workers we’ve read so much about, we mostly found people who face their days through soul-crushing boredom and deep fatigue,” Weir wrote about his visit.
In the 37-page Supplier Responsibility Progress Report, which can be viewed here, Apple said there had been a 72 percent increase in facility audits. According to the report, Apple achieved an average of 92 percent compliance with the goal, for now, of a maximum 60-hour work week.
Apple vowed last year to improve working conditions at its manufacturing facilities in China, vowing to work specifically on reducing working hours for Chinese workers. In March 2012, the Fair Labor Association released a report on the poor conditions at Apple’s Foxconn supplier. The organization gave a long list of recommendations to Apple and Foxconn, and both Apple and Foxconn agreed to follow them.
In August, the FLA said that that Foxconn had completed 280 action items on time or ahead of schedule. By July 1, 2013, Foxconn has promised to reduce workers’ hours to 49 hours per week and stabilize pay — though the limit is rarely enforced because workers often want to work overtime and make ends meet.
Apple announced in December that it would begin to make some of its Mac computers in America in 2013. Apple’s stock has fallen over the last week, even though it announced a record number of iPhones and iPads sold in its last quarter.
Onshoring High-tech Manufacturing Jobs Makes Economic Sense
in UncategorizedPresident and CEO
SCHOTT North America, Inc.
January, 2013
This isn’t a story about selling more products because they’re “Made in the U.S.A.” It’s a financial equation. Quite simply, it’s becoming economically wise to manufacture in the U.S. But as U.S. businesses bring their manufacturing home, a challenge arises: how to attract and train the next generation of manufacturing employees.
A changing equation
A number of changes over the past 15 years have rewritten manufacturing’s financial equation. Wages in China have increased 500 percent since 2000 and are expected to continue to rise at a rate of 18 percent per year. Oil prices have tripled since 2000, and that jump is reflected in higher shipping costs. More recently, natural gas prices in the U.S. have fallen so far that natural gas in Asia now costs four times as much.
Many companies are increasingly concerned about lack of IP protection in China, which may encourage them to keep manufacturing closer to the vest. Companies are also beginning to understand the hidden costs of separating manufacturing from marketing and engineering. Companies lose time to shipping components and products, or flying management from country to country to oversee production. Potential communication issues can hurt the quality of a product. When manufacturing is outsourced overseas, the time to market hamstrings true innovation. And of course, there’s a human cost — some overseas manufacturing plants have awful working conditions.
The next challenge
All of these factors have made the U.S. a more attractive option for manufacturing in recent years. Higher U.S. worker productivity and more flexible unions are adding to the list of reasons for companies to onshore their manufacturing. On top of the financial equation, many companies — both B2B and B2C — just want to be closer to their customers.
But onshoring jobs will require an investment, both in new assembly lines and new workers. The shift toward electronics and other high-tech products requires different facilities and skill sets than the U.S. employed in its manufacturing heyday. And as a country we need to portray manufacturing as an attractive, stable career. The government and universities are partnering with the industry to offer relevant training and courses for careers in manufacturing. In addition, more companies need to take the initiative to train manufacturing workers. Apprenticeship programs, such as those that have had success in Germany, are one way to attract qualified individuals who may not have thought about going into manufacturing. SCHOTT North America recently initiated an apprenticeship program modeled after the tried and true German apprentice model.
Businesses looking to onshore manufacturing should begin laying out a growth plan for the next five years, including worker training. If more companies do the math on the true cost of manufacturing overseas, the onshoring trend established by GE, Lenovo, and Apple is sure to continue.
If you or someone you know is interested in reshoring your manufacturing business, please check out Harry Moser’s Reshoring Initiative. Their mission is to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from ‘offshoring is cheaper’ to ‘local reduces the total cost of ownership.’
Is Manufacturing “Cool” Again?
in UncategorizedJanuary, 2013
Of course, any manufacturing rebound in the advanced economies will not generate mass employment; but it will create many high-quality jobs. There will be more demand for software programmers, engineers, designers, robotics experts, data analytics specialists, and myriad other professional and service-type positions. In some manufacturing sectors, more such people may be hired than will be added on the factory floor.
Exploding demand in developing economies and a wave of innovation in materials, manufacturing processes, and information technology are driving today’s new possibilities for manufacturing. Even as the share of manufacturing in global GDP has fallen – from about 20% in 1990 to 16% in 2010 – manufacturing companies have made outsize contributions to innovation, funding as much as 70% of private-sector R&D in some countries. From nanotechnologies that make possible new types of microelectronics and medical treatments to additive manufacturing systems (better known as 3D printing), emerging new materials and methods are set to revolutionize how products are designed and made.
But, to become a genuine driver of growth, the new wave of manufacturing technology needs a broad skills base. For example, it will take many highly-trained and creative workers to move 3D printing from an astounding possibility to a practical production tool.
Consider, too, the challenges of the auto industry, which is shifting from conventional, steel-bodied cars with traditional drive trains to lighter, more fuel-efficient vehicles in which electronics are as important as mechanical parts. The Chevrolet Volt has more lines of software code than the Boeing 787. So the car industry needs people fluent in mechanical engineering, battery chemistry, and electronics.
Manufacturing is already an intensive user of “big data” – the use of massive data sets to discover new patterns, perform simulations, and manage complex systems in real-time. Manufacturing stores more data than any other sector – an estimated two exabytes (two quintillion bytes) in 2010. By enabling more sophisticated simulations that discover glitches at an early stage, big data has helped Toyota, Fiat, and Nissan cut the time needed to develop new models by 30-50%.
Manufacturers in many other branches are using big data to monitor the performance of machinery and equipment, fine-tune maintenance routines, and ferret out consumer insights from social-media chatter. But there aren’t enough people with big-data skills. In the United States alone, there is a potential shortfall of 1.5 million data-savvy managers and analysts needed to drive the emerging data revolution in manufacturing.
The shift of manufacturing demand to developing economies also requires new skills. A recent McKinsey survey of multinationals based in the US and Europe found that, on average, these companies derive only 18% of sales from developing economies. But these economies are projected to account for 70% of global sales of manufactured goods (both consumer and industrial products) by 2025. To develop these markets, companies will need talented people, from ethnographers (to understand consumers’ customs and preferences) to engineers (to design products that fit a new definition of value).
Perhaps most important, manufacturing is becoming more “democratic,” and thus more appealing to bright young people with an entrepreneurial bent. Not only has design technology become more accessible, but an extensive virtual infrastructure exists that enables small and medium-size companies to outsource design, manufacturing, and logistics. Large and small companies alike are crowd-sourcing ideas online for new products and actual designs. “Maker spaces” – shared production facilities built around a spirit of open innovation – are proliferating.
And yet, across the board, manufacturing is vulnerable to a potential shortage of high-skill workers. Research by the McKinsey Global Institute finds that the number of college graduates in 2020 will fall 40 million short of what employers around the world need, largely owing to rapidly aging workforces, particularly in Europe, Japan, and China. In some manufacturing sectors, the gaps could be dauntingly large. In the US, workers over the age of 55 make up 40% of the workforce in agricultural chemicals manufacturing and more than one-third of the workforce in ceramics. Some 8% of the members of the National Association of Manufacturers report having trouble filling positions vacated by retirees.
Indeed, when the NAM conducted a survey of high-school students in Indianapolis, Indiana (which is already experiencing a manufacturing revival), the results were alarming: only 3% of students said that they were interested in careers in manufacturing. In response, the NAM launched a program to change students’ attitudes. But not only young people need persuading: surveys of engineers who leave manufacturing for other fields indicate that a lack of career paths and slow advancement cause some to abandon the sector.
Manufacturing superstars such as Germany and South Korea have always attracted the brightest and the best to the sector. But now manufacturers in economies that do not have these countries’ superior track record must figure out how to be talent magnets. Manufacturing’s rising coolness quotient should prove useful, but turning it into a highly sought-after career requires that companies in the sector back up the shiny new image with the right opportunities – and the right rewards.
Made in USA Makes Comeback as a Marketing Tool
in UncategorizedJanuary 21, 2013
It’s working: Over 80% of Americans are willing to pay more for Made-in-USA products, 93% of whom say it’s because they want to keep jobs in the USA, according to a survey released in November by Boston Consulting Group. In ultra-partisan times, it’s one of the few issues both Democrats and Republicans agree on.
When considering similar products made in the U.S. vs. China, the average American is willing to pay up to 60% more for U.S.-made wooden baby toys, 30% more for U.S.-made mobile phones and 19% more for U.S.-made gas ranges, the survey says.
Now Wal-Mart wants a piece of the action. The behemoth, embroiled over the past year with worker protests and foreign bribery investigations, pledged recently to source $50 billion of products in the U.S. over the next 10 years, says Wal-Mart spokesman Randy Hargrove. They’re not alone. Mendoza says both Caterpillar and 3M have also made efforts to source more in the U.S.
“Regardless if this is a PR ploy or not, it doesn’t matter. A lot more people will look for the Made-in-USA tag,” she says, adding that, considering Wal-Mart’s size, $5 billion a year is only “a drop in the bucket,” for the retailer whose 2012 sales reached almost $444 billion.
Kyle Rancourt says his American-made shoe company, Rancourt & Co., hit it big as concern over U.S. jobs mounted when the recession hit in 2009. But he says he lies awake at night worrying if Made-in-USA is just a passing fad.
“It’s inevitable that times will change,” Rancourt says. “But I am still holding out hope that this has become a core value of our country.”
Mendoza says that if buying American turns out to be a passing fad, the country is in trouble.
“If they don’t understand the economic factor, we need to pull on their heartstrings,” she says. “The thought of having a country like China taking over, that alone is bone-chilling.”
But do folks care enough about U.S. manufacturing jobs to permanently change the way they shop? David Aaker, vice chairman of brand consulting firm Prophet, says the companies that get the most credit for being American, such as Apple and Cisco, don’t even source products in the U.S.
“I don’t think it matters unless it becomes visible,” Aaker says. “The most common way for that is if something bad happens, like if Nike gets some press about conditions in factories overseas.”
But Rancourt says his customers believe foreign-made shoes lack the soul of their American counterparts.
“There’s hundreds if not thousands of workers working on those factories. They do one specific job, maybe put an eyelet into a specific place,” he says. “They don’t have an idea or concept of a finished product and how that should look.”
Just watch out for phony Made-in-USA claims. It’s illegal to claim a product is U.S.-made unless both the product and all it’s components are sourced in the U.S. Even products that could imply a phony country of origin with a flag or country outline are verboten. Julia Solomon Ensor, enforcement lawyer at the Federal Trade Commission, says the FTC gets “several complaints each month about potentially deceptive ‘Made-in-the-USA’ claims.”
It sets a bad example. Mendoza says the U.S. needs to let kids know it’s OK to work in manufacturing. “Not all children are going to grow up to be dentists, and lawyers, and investment bankers.”
For offshored Jobs to Return, Rich Countries Must Prove That They Have What it Takes
in UncategorizedMr Blinder of Princeton University was among the most prominent economists to give early warning about the impact of sending services abroad. In an article in Foreign Affairs in 2006 he said that up to 42m American services jobs could eventually be lost; the shift could add up to a third industrial revolution.
It has now become clear that the worst fears have not been realised. Nobody knows exactly what offshoring has done to American employment since 2006, but estimates by specialist consulting firms such as the Hackett Group, based on confidential data from corporate clients, come up with relatively low figures. According to Hackett, the net number of business-services jobs in big American and European companies lost between 2002 and 2016 is likely to be around 3.7m, and only 2.1m of those will have been due to offshoring. That works out at a loss from that cause of just 150,000 jobs a year. .
The firm’s current estimate of how much has been lost and what is still to come is much closer to a forecast by Forrester Research back in 2004 that 3.4m American services jobs would move offshore by 2015, or about 300,000 jobs a year. McKinsey has also been far more sanguine than Mr Blinder; it said in 2006 that 11% of service jobs around the world could in theory be carried out “remotely”. In practice, it thought, only about 650,000 jobs a year would be affected. So far the optimists have been proved right.
The number one job-killer in America in recent years has been the recession, says Mr Blinder: “Only a trivial percentage of jobs has been claimed by offshoring.” He thinks that the move to reshore some manufacturing jobs is important, even though the scale of it is still small, but that a wave of services offshoring could yet hit Western countries. The main reason is advances in information and communications technology that could allow more and more senior and skilled jobs to be sent abroad. But it would take big cost savings to justify having such sophisticated, “high-touch” services done at a distance, and those savings are gradually disappearing, as this report has shown. Pay for highly skilled, English-speaking workers in developing countries who could offer such services is rising rapidly. And companies are becoming increasingly concerned that offshoring services may do longer-term damage.
The best argument for locating activities overseas nowadays is to be close to fast-growing new markets, and it will only become stronger. McKinsey estimates that by 2025 developing economies will account for nearly 70% of demand for manufactured goods. Whereas in the past firms treated such markets as sources of cheap labour, they are now looking for a deep local presence. ABB, for instance, has gone from having what it calls a “cost arbitrage” strategy for countries such as China to taking an “in country for country” approach, meaning that it wants not only manufacturing but also functions such as product management and R&D to be based there.
Strong growth in emerging countries will also prompt their own new multinationals to set themselves up as “local” in the West. The Rhodium Group, a consulting firm, says that Chinese investment in America has already created nearly 30,000 jobs there, and that by the end of the decade Chinese firms will employ up to 400,000 Americans.
Will reshoring and the move of emerging-country multinationals into Western markets generate lots of new jobs in the rich world? The Boston Consulting Group thinks that reshoring alone could generate 2m-3m jobs in manufacturing by 2020, up to 1m of which would come direct from factory work and the rest from support services such as construction, transport and retail.
A trickle, not a flood
But it is important not to overestimate the impact of reshoring on jobs. Manufacturing work will often come back only when it has been partly automated, so the number of jobs returning will be smaller than the number lost in the first place. Most companies that have recently built new facilities or expanded existing ones in America have brought in more automation, says BCG’s Mr Sirkin. NatLabs, for instance, a Florida-based manufacturer of dental implants, reshored much of its production from China because it was able to automate a large part of it. The best that can be hoped for, says Michel Janssen of Hackett, is not that millions of high-paying jobs will return and things will be as they were before, but that “the leak of jobs out of America will be largely stopped.”
Companies are becoming more sceptical about short-term enticements, and governments would do much better to work on the most useful and durable sort of incentive: the business environment they offer. In recent years policymakers have been able to point to the global labour arbitrage as the obvious and overwhelming reason why firms offshore. When Harvard Business School surveyed companies that were moving activities outside America, it found that lower wage rates were the main attraction for 70% of them. But a third also said that they were moving out to get better access to skilled labour.
As the gap in worldwide wage rates narrows further, it will become more obvious that other factors, such as skills, labour law, clusters of industries, infrastructure, tax and regulation are playing an ever more important role when companies decide wh
ere to
put their production. Now that many firms are taking another look at their outsourcing and offshoring policies, governments need to give them every reason to come back. “If companies are offshoring because of fixable policy problems at home,” says Mr Porter, “that is unforgivable.”
Can’t get the staff
In a recent report on global manufacturing, McKinsey said that in the near future the world is likely to have too few high-skilled workers and not enough jobs for low-skilled workers. Companies’ decisions on where to locate will increasingly be driven by where they can find the skilled workers they need. In 2011 a survey of 2,000 American companies found that 43% of manufacturing firms took longer than six months to fill some of their vacancies. The United States has a particular problem because it is producing too few college graduates and too many high-school dropouts. In Japan, four-fifths of companies have problems finding technicians and engineers. As a result, many firms will be unable to reshore because they cannot find workers with the right skills.
Another big problem is labour flexibility, which still varies greatly from country to country. In Britain, says Hans Leentjes, president for northern Europe at Manpower, an employee can be fired by following due process and paying a week’s severance money for each year worked. In Germany, by contrast, companies have to negotiate a settlement and pay between one and two months’ salary for each year worked. The German employee can still go to court and the company may have to reinstate him. “In a global economy where firms can go where they want, these differences have an effect,” says Mr Leentjes.
There are signs that labour in rich countries is becoming more flexible at the same time as workers in Asia are slowly acquiring more rights. Multinationals now recognise America’s low-cost, flexible workforce as an important attraction. Spurred by the euro crisis, Spain and Italy have both introduced big labour-market reforms. Another sign of the times is that Western carworkers are willing to work night shifts again. In August last year Jaguar Land Rover, owned by Tata, announced the return of night shifts at its factory near Liverpool, and the Big Three American carmakers are increasingly working around the clock. At the same time carworkers in South Korea, once the sort of hard-working, poorly paid competition feared in the West, succeeded in abolishing night shifts at Hyundai and Kia, two big firms.
But it is probably only in America and Britain that labour is flexible enough to have a good chance of persuading companies to reshore production. At the other extreme sits France, where Arnaud Montebourg, the minister appointed to rebuild his country’s industry, late last year told Lakshmi Mittal, an Indian steel tycoon, that he was not wanted in France after his struggling company, ArcelorMittal, tried to shut down blast furnaces.
Agencies providing temporary staff, such as Manpower, play their part, allowing firms to treat workers as a flexible resource not a fixed cost. It is no accident that Manpower’s biggest market is France. In Japan the labour market is also rigid. Back in 2007 Fujio Mitarai, chief executive of Canon, a maker of optical products, said that temporary agencies had helped manufacturing firms avoid the “hollowing out” of industry. But now the government has restricted the use of temporary workers. Along with the appreciation of the yen, that is prompting more offshoring by Japanese firms, says Manpower’s Hiroyuki Izutsu.
Lenovo’s North Carolina headquarters, inherited from IBM, sits at the heart of the state’s Research Triangle Park, a regional cluster of universities and hi-tech businesses. It is an example of the sort of business ecosystem that is capable of drawing corporate investment from around the world. The area boasts competitive costs, highly skilled workers, a close partnership with local universities and a business-friendly environment. Unlike Dell, Lenovo is taking no money at all from the state government for starting to manufacture at Whitsett.
Internally the firm’s factories compete hard with each other on cost, productivity and quality. It will quickly become clear if “Made in America” is a luxury or whether it creates sustained value for the Chinese firm. Tony Pulice, the firm’s factory manager in North Carolina, is ready to show what his country can do.
787 Grounding Puts Boeing’s Outsourcing in Focus
in UncategorizedParts came into Boeing’s Seattle, Washington and Charleston, South Carolina assembly plants from 135 other sites and 50 suppliers.
Those include Japan’s GS Yuasa, which made the batteries linked to at least two of the problems that led to the grounding this week, and France’s Thales, which assembled the batteries for delivery to Boeing.
No other aircraft around the world is put together from so many disparately-sourced pieces.
Fifty per cent of the Dreamliner is made from composite materials, including much of the fuselage and wings, which come from manufacturers in Japan, Italy, South Korea, the United States and elsewhere.
Some 70 per cent of the plane is outsourced, said Richard Tortoriello, an analyst at Standard and Poor’s.
“That creates a potential for more problems to occur than if production is centralized, because quality control can be better managed” in a centralized process, he said.
Tortoriello said the outsourcing strategy was partly to blame for the delays in delivering the first planes, which entered service in October 2011.
But he emphasised that so far there was “no indication” that the approach was behind the problems that began to surface two weeks ago among Japanese operators of the 787.
These include a tarmac fuel leak in a 787 and battery fires in two others, which led the US Federal Aviation Administration to ground the plane Wednesday, effectively taking it out of business globally.
Hans Weber, an independent security and defence expert, said Boeing had been too optimistic about its strategy.
“Boeing has admitted that it underestimated the level of management oversight and engineering support it needed to provide to its suppliers to make the highly distributed supply chain work,” he told AFP.
“If Boeing had done a better job at that, it would not have experienced the technical problems it has, in my opinion.”
He added: “I think the technologies on the 787 are sound, but the execution of the program could have been better.”
Since the 787 program kicked off in 2004, it has been dogged by numerous problems that delayed its first delivery, to Japan’s ANA, by three and a half years.
Michael Boyd, an independent aeronautical industry analyst, said the production system was not the 787’s problem.
Rather, “it’s the batteries — the quality control would have been the same” whatever the production strategy, he said.
A Boeing spokesperson told AFP that, for the moment, there has been no slowdown of production.
One of the largest industrial groups in the United States, Boeing currently completes about five aircraft a month and aims to reach a pace of 10 a month by the end of this year.
Tortoriello said he thought the new problem would slow 787 turnout.
“Given the amount of thought that went into the current battery system, we think a fix may take some time to develop and implement, and expect this focus will likely slow production,” he said.
“We continue to have confidence in BA’s engineering staff, see other issues with the 787 as non-critical, and view its value proposition to customers as high.”