Wednesday, August 31, 2011

Another Company Moves Production Back to U.S.

Back to the USA: Manufacturing Makes a Comeback


On Bloomberg TV, CEO Lonnie Kane of U.S.-based women's clothing company Karen Kane talks about the company's decision to reduce the amount of clothing it produces in China from 50% to 20%, and increase its U.S. manufacturing from 50% to 80%.

Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable.  When the company added in import duties and shipping costs for clothing produced in China, moving production back to the U.S. started to make sense economically, even with higher (but stable) labor costs in the U.S.       

Karen Kane is not the first company to move production back to the U.S. (Caterpillar, Wham-O and NCR are recent examples) and certainly won't be the last.  Relocation of manufacturing back to the U.S. is a growing trend that reflects the reality that labor arbitrage is quickly disappearing for outsourcing manufacturing to China and other low-wage (but rapidly rising) countries.

As the Boston Consulting Group reported in May, "Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.  We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years."

19 Comments:

At 8/31/2011 10:56 AM, Blogger Buddy R Pacifico said...

Interesting to note that, the Boston Consultancy report states that U.S. firms have flexibility to move production back to the U.S. Europe, because manufacuterers lack flexibility in wages and benefits, is forced to leave offshoring in China.

The report states that this is within the context of moving back for domestic market production. Nonetheless, this is great for the U.S. economy and employment.

 
At 8/31/2011 11:05 AM, Blogger NormanB said...

Obama's jobs czar, Jeff Immelt the CEO of GE, moved his x-ray business to China out of Wisconsin, I think, where he'll hire 65 engineers and spend $2B. Some jobs may come back here but when Obama is involved in sending them to China we should not hope for the best.

 
At 8/31/2011 11:27 AM, Blogger Benjamin said...

I think the trend is inevitable. China cannot remain the world's low-cost manufacturing platform, if living standards rise, and real estates values soar. Sheesh, in 40 years they may have the world's highest living standards.

India is too corrupt and stodgy to make goods quickly, Europe too expensive, Japan too expensive, Africa is a basket case and South America is the Gong Show.

Ergo, the USA has a an increasing role as a manufacturing platform, especially if we can keep the US dollar cheap.

In other words, Mr. Bernanke, print more money.

 
At 8/31/2011 2:21 PM, Blogger PeakTrader said...

More inflation, less profit, and depressed wages?

 
At 8/31/2011 6:49 PM, Blogger Craig said...

It is the inflation that will kill China's export machine. As prices and wages rise, foreign goods will become more accessible to Chinese consumers and Chinese manufacturing will become less attractive to foreigners.

It is exactly what caused the American trade deficit to become a chronic condition. The Germans and the Japanese understand this concept and have kept inflation well-contained. I suspect the Chinese understand it, too, but have unleashed forces they dare not rein in.

 
At 9/01/2011 8:17 AM, Blogger morganovich said...

US wages and productivity not looking so hot either:

"WASHINGTON (AP) — Worker productivity in the United States fell this spring more quickly than previously estimated while labor costs were rising at a faster clip. Both developments could pose threats to a fragile economic recovery.

The U.S. Labor Department reported Thursday that productivity declined at an annual rate of 0.7 percent in the April-June period, a bigger drop than the 0.3 percent decline reported a month ago. Labor costs rose at an annual rate of 3.3 percent, faster than the 2.4 percent increase originally reported."

 
At 9/01/2011 9:22 AM, Blogger juandos said...

Note the following three headlines over on the Drudge Report...

morganovich noted one, this story is from the AP: US productivity falls in spring, labor costs rise

From the WSJ blogs: Jobless Claims Stuck Above 400,000, Productivity Falls

Bloomberg attempts to spin something positive out of it all: Jobless Claims in U.S. Fell by 12,000 Last Week

To cure any of the unemployment up there's going to need to be a whole lot of companies moving manufacture in the good, ole US of A...

 
At 9/01/2011 10:32 AM, Blogger VangelV said...

As the Boston Consulting Group reported in May, "Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world. We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years."

Get out the party hats boys and girls. In five years it will be cheaper to have low value goods made in the US than it China. If American wages decline by enough the US could be a huge player in clothing once again.

Your children can go and work in factories where they sew Nike and Columbia shirts that are exported to Chinese, Brazilian, and Indian consumers. And if they are lucky we can bring back the manufacture of brooms, cocktail umbrellas, and even high skilled work like making shoes.

Rejoice because this is great news for America and its workers.

 
At 9/01/2011 10:34 AM, Blogger VangelV said...

Obama's jobs czar, Jeff Immelt the CEO of GE, moved his x-ray business to China out of Wisconsin, I think, where he'll hire 65 engineers and spend $2B. Some jobs may come back here but when Obama is involved in sending them to China we should not hope for the best.

But you are talking about 65 engineering jobs versus thousands of garment worker jobs. Let the Chinese have the high end jobs and lay off their low skilled workers. The US will gain more jobs and figure out a way to get jobs to its own low skilled workers.

 
At 9/01/2011 1:43 PM, Blogger Ron H. said...

"Rejoice because this is great news for America and its workers."

"But you are talking about 65 engineering jobs versus thousands of garment worker jobs. Let the Chinese have the high end jobs and lay off their low skilled workers. The US will gain more jobs and figure out a way to get jobs to its own low skilled workers."

Now, now, I think you're just cranky because you're having a bad morning.

Surely you will agree that just reducing the use of labor saving machines would create more than enough jobs, especially in the construction sector, where unemployment is so high right now.

 
At 9/01/2011 5:15 PM, Blogger Ron H. said...

"The US will gain more jobs and figure out a way to get jobs to its own low skilled workers."

I'm sure there are a lot of unemployed construction workers who have always dreamed of learning to sew shirts or make cheap plastic toys.

 
At 9/01/2011 7:07 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 9/01/2011 7:08 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 9/01/2011 7:10 PM, Blogger sethstorm said...

NCR may have moved work back to the US, but that sounds like a distraction in light of a secretive theft from their 125-year home in Ohio to worker-hostile territory in Georgia - by an unaccountable, opaque part of Georgia's government.

 
At 9/01/2011 8:30 PM, Blogger VangelV said...

Surely you will agree that just reducing the use of labor saving machines would create more than enough jobs, especially in the construction sector, where unemployment is so high right now.

How long till Walt brings up the need for OSHA to apply its rules in India?

 
At 9/01/2011 8:32 PM, Blogger VangelV said...

NCR may have moved work back to the US, but that sounds like a distraction in light of a secretive move to from their 125-year home in Ohio to worker-hostile territory in Georgia.

Georgia is hostile to workers? I guess that explains why they are leaving in droves for Michigan or California. Soon Texas, North Carolina, and Georgia will lose all their workers and the worker-friendly states will see an incrase in their population.

 
At 9/01/2011 9:57 PM, Blogger Ron H. said...

"in light of a secretive theft from their 125-year home in Ohio to worker-hostile territory in Georgia "

Well, this can't be much of a secret if you, and now all of us, know about it.

"- by an unaccountable, opaque part of Georgia's government."

I'm dying to know what part that is, or is it so opaque that no one knows? Kind of an area 51 of Georgia governance?

Where have you been, sethstorm? I've missed the laughs you provide here.

While there are other clueless clowns who post here, none of them have your incredible talent.

 
At 9/09/2011 5:49 AM, Blogger Aaravkmr said...

Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable.http://www.aussieoxford.co.uk

 
At 9/09/2011 11:13 PM, Blogger VangelV said...

Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable.

American costs are not more controlled and predictable. You have the EPA classifying hay as a pollutant and Obamacare causing health care costs to explode. You have new labour regulations that would allow unionization without secret ballots. You have state and local governments looking for ways to rob producers so that they can finance their unsustainable programs.

 

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