October 3, 2012
Lumitec’s products, which are designed for extreme environments, require exact specifications that need frequent product monitoring. So the lag time to make changes typically associated with manufacturing thousands of miles away in China is not an option. To accommodate these needs, Lumitec’s headquarters are in a 10,000-square foot facility that can handle the customization and assembly that clients require.
Lumitec is like an increasing number of small companies that are manufacturing in the United States, and bucking a 30-year trend of outsourcing such production overseas.
These companies find increased control, quality, and production standards domestically that may cancel out the cost savings that could come with manufacturing overseas. They are also turning the table on recent history in other ways, by exploiting sales in international markets, and uncovering opportunities by selling their goods to other countries in addition to domestically. They find the ‘Made in the U.S.A.’ stamp brings them unexpected cachet.
“We attend trade shows outside of the U.S. and people are always pleasantly surprised that we manufacture in the U.S.,” says John Kujawa, chief executive of Lumitec, which exports its lighting products to more than 30 countries. “it is understood that many products manufactured in the U.S. are greater quality than those from certain other countries.”
Manufacturing businesses have added 500,000 jobs in the United States since 2009, though the sector has a lot of ground to make up, having lost 2.3 million jobs since the start of the recession. States that led the way were Michigan, Ohio, Indiana, Texas, and Illinois, which combined added a quarter of a million of those jobs over the same period.
“You see manufacturers do more with less, as the unit labor cost goes down…[and] lean manufacturing has improved our overall competitiveness,” says Chad Moutray, chief economist for the National Association of Manufacturers.
About 40% of manufacturers are looking toward export trade as one of their primary growth vehicles today, the manufacturing association says.
At the same time, costs of labor, tariffs, and shipping overseas have risen. On average, it is still 20% more expensive to manufacture in the U.S. than it is with major trading partners overseas, excluding the cost of labor, according to the association.
The New York metropolitan area led the nation for exporting, shipping $105 billion of goods in 2011, according to the most recent numbers from the International Trade Administration, an increase of 25% from the prior year.
Alex Stadler is one of the entrepreneurs who has succumbed to the allure of New York’s manufacturing and exporting trade renaissance.
Stadler is the founder and sole proprietor of Stadler-Kahn, a textile manufacturer and retail store in Philadelphia. He manufactures hand-designed, high-end scarves in New York and exports them to Italy, in addition to selling in the U.S.
Because Stadler’s runs are so small, generally on the order of several hundred pieces at a time, he couldn’t work with the manufacturers he researched in China, he says. At the same time, Stoll, a German knitting machine company just establishing a foothold in Manhattan, jumped at the opportunity to help Stadler when he approached them.
And, in addition to Stoll, Stadler has found a whole cluster of businesses in New York City’s Garment District to work with him, including a manufacturer for his garment labels, and a distributor of the Merino wool he uses. These companies are all within walking distance of each other, Stadler says, so he can keep a close eye on things.
If Stoll ever has a question on his prototypes, Stadler says he can make it up to New York from Philadelphia in two hours.
Though Stadler admits that if he had the volume to engage a factory in China, he could make his product at a third his current cost, he says his customers feel good knowing they are paying for his American craftsmanship, not for middlemen, and extra shipping costs.
“People love to hear a product is made in the U.S., and those little letters `NYC’ hold a lot of glamour for customers,” Stadler says.
The decision to manufacture domestically depends primarily on your particular product, how easily and cheaply you can rent or buy space, and your ability to either hire or temporarily staff employees to do the work.
One thing manufacturers like about assembling products overseas is the ease at which they can quickly ramp up or down without having to hire full-time employees. Some U.S. manufacturers like Brian Kline, chief executive of lighting company MSi SSL, have gotten around this hurdle by hiring temporary employees to do the work when they have it in the U.S.
MSi, based in Deerfield Beach, Florida, manufactures specialized LED bulbs for things like miners helmets, power lamps, and track lighting. While it uses a factory in China for 90% of its production, it also does 10% of its manufacturing in the U.S.
In situations when limited size orders have to be shipped to the customer on an extremely compressed time schedule that its Chinese factory can’t accommodate, it uses a team of temps to assemble the products in the small plant MSi has created above its office headquarters.
“Ramping up and ramping down is harder to manage here” with full-time workers, Kline says.
Similarly, there are a number of important things manufacturers need to keep in mind before they export. One of the first places you should probably turn to is the U.S. Commercial Service, a division of the U.S. Department of Commerce charged with helping U.S. entrepreneurs figure out the vicissitudes of exporting. (It recommends the federal site export.gov.)
But the Commercial Service also has staff in 108 markets around the world that can help with things like identifying market opportunities and locating distribution partners. It offers free consultations and low rates for consulting work, which can includes finding suitable partners overseas. It also operates something called ExporTech, a pseudo university for entrepreneurs considering exporting, that helps develop international growth plans.
One of the most important things to consider about exporting, says Tom Moore, deputy assistant secretary for international operations at the Commercial Service, is making sure you have a robust market for your goods in another c
; that requires research and knowledge of competitors. It’s also critical to find an overseas partner you can depend on and trust. Working with someone you haven’t vetted properly can cost time and money.
Other best practices: research the rules and regulations of the market you’ll be selling into. That includes national product standards, certification requirements, electricity regulations, and packaging and recycling laws, as well as quality standards.
Knowledge of tariffs and other overseas taxes, as well as tariff codes is also essential, as entering the wrong tariff code can be a costly mistake, says Moore. For example, Moore says the Commercial Service worked with a globe manufacturer recently that had been entering a toy code instead of an educational code for its product. This cost the company an additional 20% in tariffs overseas.
“That can really impact your ability to sell into a [new] market,” Moore says.