U.S. companies bringing production back home
Trend toward ‘on-shoring’ work is seen
By Larry Avila
Post-Crescent business editor
Mike Klonsinski isn’t ready to call what he’s been reading about a trend, but he hopes it’s true.
As the executive director of the Madison-based Wisconsin Manufacturing Extension Partnership, it has been his job to coordinate efforts to help the state’s small- and mid-sized manufacturers work more efficiently and keep jobs from going overseas where labor historically has been cheaper. WMEP’s work and that of similar organizations, may be starting to bare fruit, which fuels some optimism for Klonsinski.
“It’s hard to call it a trend without data to support it,” Klonsinski said. “We’re just relying on anecdotes … but there are signs that some manufacturers are doing more in-sourcing these days than outsourcing.”
Brian Jacobsen, a capital markets strategist with Wells Fargo Advantage Funds in Menomonee Falls, said years of implementing lean manufacturing or efficiency principles into production is paying off for U.S. manufacturers.
The latest buzz in manufacturing circles is “on-shoring,” where U.S. companies are moving manufacturing work from overseas back to their domestic sites.
“Productivity of U.S. workers is more cost effective, which gives companies a competitive advantage and many are seeing they can make more product here for the dollars they spend versus what they can get overseas,” Jacobsen said.
General Electric is an example of the in-sourcing movement. GE is moving some of its appliance manufacturing out of China to Appliance Park in Louisville, Ky.
In GE’s case, spokes-woman Kim Freeman cited lowered wages here, along with tax credits offered by the state and more control over production and development as reasons to move some production to Kentucky.
By 2012, GE will add production of an automatically energy-efficient washer and dryer pair expected to add 830 jobs to its 4,100 employees in Louisville.
U.S. manufacturers can directly compete with China on costs such as packaging, freight, quality control and raw materials, according to the National Tooling Machining Association, a trade group of 2,000 machine shop owners based in Fort Washington, Md.
Once there was a “huge push to drive down costs by finding the lowest-cost source that can meet specifications,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight, a consulting firm based near Boston.
In China, Brazil, and elsewhere over the years, however, companies have found that “plugging some of these suppliers into your supply chain isn’t as easy as they thought,” he said.
Challenges in manufacturing offshore are legion, Bethune added. Infrastructure can be undependable, including frequent electrical brownouts in some regions of China. Manufacturing is often plagued by quality problems, rendering products unfit to sell in more sophisticated markets. Language and cultural barriers pose more difficulties. Negotiating governmental expectations and hurdles, especially in China, is a huge issue.
Klonsinski said transportation costs to ship goods from Asia to the U.S. remain high and are constantly rising.
“When you’re talking about moving goods 4,000 miles versus 1,000 miles costs come into play,” he said. “Distance also plays into time of delivery. When you’re shipping by boat, you’re looking at maybe six weeks or more.”
Kent Mortensen, an equity analyst with Thrivent Financial for Lutherans, an Appleton-based insurance and investment services company, also is familiar with the emergence of in-sourcing in domestic manufacturing but is uncertain if it’s a growing movement.
“I’d suspect it is happening, but I wouldn’t say it’s a large trend, but it is interesting that we are hearing about it,” he said.
Mortensen said U.S. companies today are focused on getting established in emerging markets, including China, because of growing consumer demands from those regions.
“Most of the time, U.S. companies just want to get a share of those growing markets,” he said. “U.S. companies want to be in China today, not necessarily because of cheap labor, but to serve the fastest- growing market in the world today.”
Mortensen said when China was in the early stages of its industrial ramp up, affordable labor was plentiful. But that isn’t the case today.
“The days of going (to China) to find large pools of (cheap) labor are fading,” he said.
Additional Facts On the Web
Wisconsin Manufacturing Extension Partnership: www.wmep.org