Word Of The Day: "Insourcing"; Some Manufacturing Starts To "Trickle" Back To USA
The Wall Street Journal
Buck Up, America: China Is Getting Too Expensive
October 7, 2011
Article Quotes:
A few years ago in Hong Kong I met a furniture manufacturer from South Carolina who had outsourced production to China and then been crushed by his Chinese partners, who bumped him aside and started selling directly to the U.S. market.
Some surprising U.S. industry sectors may benefit as economic forces prompt more manufacturers aiming product at Americans to consider building in the U.S. rather than China. John Bussey has details on The News Hub.
He no doubt would be intrigued to see the tide turning again today.
In the Great Game of global wage and cost arbitrage, bits of some rather surprising industries are drifting back to U.S. shores, and the pace could quicken. Furniture making—usually labor intensive and low-skilled—is just one shocker. On Tuesday Ford said it will build some auto parts in the U.S. that have traditionally been sourced in China. And there's more.
Currency hawks in Congress are this week promoting legislation to penalize China for manipulating the yuan. They might want to take note of this trend: The jobs they want to bring home may already be trickling back to the U.S.—emphasis on the trickle.
Bruce Cochrane is emblematic of the incipient shift. He's opening a furniture factory in Lincolnton, N.C., a rare event in a region and industry that have been walloped by outsourcing. Employment in U.S. furniture factories fell by 60% over the last decade.
Mr. Cochrane says furniture made in China and sold in the U.S. previously had a price advantage of up to 50%. That's often down to 10% to 15% now, in part because wages in China are soaring—up 15% or more a year in some locales. Shipping costs, he says, have doubled from a few years ago.
"About 2006 I saw a pivot point, especially with labor costs," says Mr. Cochrane, who has spent time in China.
Certain jobs have been dribbling back to the U.S. for a few years. But now the sectors most likely to repatriate production may be coming into focus.
Hal Sirkin of Boston Consulting Group has identified seven industry categories that are most susceptible to relocating production aimed at the U.S. market (production for the Chinese market would stay chiefly in China). They are furniture, transportation goods, computers and electronics, electrical equipment and appliances, plastics and rubber products, machinery, and fabricated metal products.
Mr. Sirkin says products in these categories may be cheaper to make in China now. But with labor, materials and shipping costs rising, the advantage will tip to the U.S. in four years or so.
There have been optimistic prognostications of this sort in the past that fell flat. But a number of forces at work today suggest that this time could indeed be different.
Among the forces: those ever-rising costs in China; more flexibility from some U.S. unions, resulting in fewer work rules and lower labor costs; more subsidies from some state governments; far higher productivity in the U.S.; and pressure from retailers to shorten turnaround time and cut inventories, prompting more manufacturers to abandon long supply chains to China.
And the yuan. After considerable jawboning by governments around the world, Beijing has allowed its currency to rise roughly 30% against the dollar since 2005. Since a stronger yuan makes China's exports more expensive in foreign markets, that's bad for U.S. manufacturers who serve their global customers from factories in China—and for U.S. consumers hooked on cheap Chinese products.
But for those who want to reclaim production to U.S. shores, it's a plus.
"We're in the process of bringing everything back from China," says David Gil, marketing director for Sleek Audio, which makes high-end tunable earphones. Along with rising costs in China, quality control proved a headache.
Full article (with other examples) at link. Subscription required.
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The Wall Street Journal
Otis Shifts Work Closer to Home
October 7, 2011
By TIMOTHY AEPPEL
Globalization has come full circle at Otis Elevator Co.
The U.S. manufacturer, whose elevators zip up and down structures as diverse as the Empire State Building and the Eiffel Tower, is moving production from its factory in Nogales, Mexico, to a new plant in South Carolina.
Fifteen years ago, Otis Elevator joined the stampede of U.S. manufacturers who moved production to Mexico in a bid to save money. Now they're moving it all back. Tim Aeppel explains why on The News Hub.
More startling: Otis says the move will save it money.
What's happening at Otis is part of a broader shift in the way manufacturers tally costs.
Their outlook has been changing as the cost of producing abroad has risen and they have devised more efficient ways to make things close to where they want to sell them.
International companies ranging from Ford Motor Co. to General Electric Co. have started returning to the U.S. some jobs that they had previously shipped offshore, a process sometimes dubbed as "reshoring."
"It's a trickle, it's not a trend—but clearly companies are now thinking more about it," says Paul Scott, executive director of the Alliance for American Manufacturing, a nonprofit alliance of business and labor groups that lobbies for domestic production.
A number of forces are behind the modest influx. Wages and other costs are going up in foreign countries—especially China—while pay in many industrial sectors inside the U.S. has risen slowly or even fallen in many cases. Transportation costs have grown, as have the costs of holding large stocks of inventory, a common precaution when producing goods far from their end market.
Full article (with other examples) at link. Subscription required.
The Wall Street Journal
Buck Up, America: China Is Getting Too Expensive
October 7, 2011
Article Quotes:
A few years ago in Hong Kong I met a furniture manufacturer from South Carolina who had outsourced production to China and then been crushed by his Chinese partners, who bumped him aside and started selling directly to the U.S. market.
Some surprising U.S. industry sectors may benefit as economic forces prompt more manufacturers aiming product at Americans to consider building in the U.S. rather than China. John Bussey has details on The News Hub.
He no doubt would be intrigued to see the tide turning again today.
In the Great Game of global wage and cost arbitrage, bits of some rather surprising industries are drifting back to U.S. shores, and the pace could quicken. Furniture making—usually labor intensive and low-skilled—is just one shocker. On Tuesday Ford said it will build some auto parts in the U.S. that have traditionally been sourced in China. And there's more.
Currency hawks in Congress are this week promoting legislation to penalize China for manipulating the yuan. They might want to take note of this trend: The jobs they want to bring home may already be trickling back to the U.S.—emphasis on the trickle.
Bruce Cochrane is emblematic of the incipient shift. He's opening a furniture factory in Lincolnton, N.C., a rare event in a region and industry that have been walloped by outsourcing. Employment in U.S. furniture factories fell by 60% over the last decade.
Mr. Cochrane says furniture made in China and sold in the U.S. previously had a price advantage of up to 50%. That's often down to 10% to 15% now, in part because wages in China are soaring—up 15% or more a year in some locales. Shipping costs, he says, have doubled from a few years ago.
"About 2006 I saw a pivot point, especially with labor costs," says Mr. Cochrane, who has spent time in China.
Certain jobs have been dribbling back to the U.S. for a few years. But now the sectors most likely to repatriate production may be coming into focus.
Hal Sirkin of Boston Consulting Group has identified seven industry categories that are most susceptible to relocating production aimed at the U.S. market (production for the Chinese market would stay chiefly in China). They are furniture, transportation goods, computers and electronics, electrical equipment and appliances, plastics and rubber products, machinery, and fabricated metal products.
Mr. Sirkin says products in these categories may be cheaper to make in China now. But with labor, materials and shipping costs rising, the advantage will tip to the U.S. in four years or so.
There have been optimistic prognostications of this sort in the past that fell flat. But a number of forces at work today suggest that this time could indeed be different.
Among the forces: those ever-rising costs in China; more flexibility from some U.S. unions, resulting in fewer work rules and lower labor costs; more subsidies from some state governments; far higher productivity in the U.S.; and pressure from retailers to shorten turnaround time and cut inventories, prompting more manufacturers to abandon long supply chains to China.
And the yuan. After considerable jawboning by governments around the world, Beijing has allowed its currency to rise roughly 30% against the dollar since 2005. Since a stronger yuan makes China's exports more expensive in foreign markets, that's bad for U.S. manufacturers who serve their global customers from factories in China—and for U.S. consumers hooked on cheap Chinese products.
But for those who want to reclaim production to U.S. shores, it's a plus.
"We're in the process of bringing everything back from China," says David Gil, marketing director for Sleek Audio, which makes high-end tunable earphones. Along with rising costs in China, quality control proved a headache.
Full article (with other examples) at link. Subscription required.
---------------------------------
The Wall Street Journal
Otis Shifts Work Closer to Home
October 7, 2011
By TIMOTHY AEPPEL
Globalization has come full circle at Otis Elevator Co.
The U.S. manufacturer, whose elevators zip up and down structures as diverse as the Empire State Building and the Eiffel Tower, is moving production from its factory in Nogales, Mexico, to a new plant in South Carolina.
Fifteen years ago, Otis Elevator joined the stampede of U.S. manufacturers who moved production to Mexico in a bid to save money. Now they're moving it all back. Tim Aeppel explains why on The News Hub.
More startling: Otis says the move will save it money.
What's happening at Otis is part of a broader shift in the way manufacturers tally costs.
Their outlook has been changing as the cost of producing abroad has risen and they have devised more efficient ways to make things close to where they want to sell them.
International companies ranging from Ford Motor Co. to General Electric Co. have started returning to the U.S. some jobs that they had previously shipped offshore, a process sometimes dubbed as "reshoring."
"It's a trickle, it's not a trend—but clearly companies are now thinking more about it," says Paul Scott, executive director of the Alliance for American Manufacturing, a nonprofit alliance of business and labor groups that lobbies for domestic production.
A number of forces are behind the modest influx. Wages and other costs are going up in foreign countries—especially China—while pay in many industrial sectors inside the U.S. has risen slowly or even fallen in many cases. Transportation costs have grown, as have the costs of holding large stocks of inventory, a common precaution when producing goods far from their end market.
Full article (with other examples) at link. Subscription required.