Monday, March 12, 2012

Manufacturing Boom in Michigan, Partly Due to Reshoring; U.S. Factories are Competitive Again



Michigan-based Collegiate Bead Company, manufacturer of college and sorority beads, bracelets, and charms, is featured in the CBS Evening News segment above, and in this Detroit Free Press article.  It's an example of the reshoring trend now underway in the U.S. where manufacturing production and jobs are being brought back to the U.S. from China and other low-wage countries.  

Reasons? China's cost advantages are shrinking due to rapidly rising costs there for wages, inputs, and commercial real estate, along with higher oil prices that have increased shipping costs.  Then you add in quality issues (Collegiate Bead was rejecting up to 30% of the Chinese-made products), delivery delays, time and language differences, poor safeguards for intellectual property rights and American manufacturers are finding that China is not such a great deal any more, and manufacturing goods for the U.S. market at home now makes more sense than in a generation.   

10 Comments:

At 3/13/2012 9:37 AM, Blogger AIG said...

Reason # 2: Large investment in the past decade on efficiency gains both in machines and in process, which cannot be replicated as easily in China or other lower-skill markets.

Thanks to...engineering graduates from those "grad schools" and universities we all so love to hate here on Carpe Diem for being such wastes of time ;)

 
At 3/13/2012 10:15 AM, Blogger A.F.A.B. said...

Another item to consider. In our situation we continue to fight to develop product and keep and create jobs in the U.S. Many times we have to deal with large companies (outside of the collegiate arena) or those that represent them to try and obtain licensing. Most of these large institutions have one set of criteria that everyone must meet. For us having to invest $5000 for a license is a big deal but this same fee for a large corporation is mere pocket change. I would like to see more cooperation between large and small U.S. businesses. I know it takes more time and in most cases is a more difficult road to travel but in the long run it pays the biggest dividends. I understand the importance of making a profit but making that same profit using American labor and ingenuity is the right way to go.

 
At 3/13/2012 10:15 AM, Blogger A.F.A.B. said...

Another item to consider. In our situation we continue to fight to develop product and keep and create jobs in the U.S. Many times we have to deal with large companies (outside of the collegiate arena) or those that represent them to try and obtain licensing. Most of these large institutions have one set of criteria that everyone must meet. For us having to invest $5000 for a license is a big deal but this same fee for a large corporation is mere pocket change. I would like to see more cooperation between large and small U.S. businesses. I know it takes more time and in most cases is a more difficult road to travel but in the long run it pays the biggest dividends. I understand the importance of making a profit but making that same profit using American labor and ingenuity is the right way to go.

 
At 3/13/2012 12:46 PM, Blogger Dave said...

The best reason for our companies to reshore is the collapse of NAT GAS prices.
Now if we could just get a Govt. that would encourage all types of OIL drilling, offshore & on, then we'd really be open for business.

 
At 3/13/2012 12:47 PM, Blogger Dave said...

The best reason for our companies to reshore is the collapse of NAT GAS prices.
Now if we could just get a Govt. that would encourage all types of OIL drilling, offshore & on, then we'd really be open for business.

 
At 3/13/2012 1:14 PM, Blogger AIG said...

"The best reason for our companies to reshore is the collapse of NAT GAS prices.
Now if we could just get a Govt. that would encourage all types of OIL drilling, offshore & on, then we'd really be open for business."

What do natural gas prices have to do with it? Natural gas prices affect electricity pricing, and not much else (ie transportation). But electricity prices remain considerably higher in the US, than say China.

The real reason is a combination of increasing wages in China and other developing countries (good thing), and increases in productivity due to technology and process improvements here in the US which cannot be replicated as easily in lower-skill places like China (also a good thing).

And this bring me to the point of why commenters like VangeIV are so completely off the mark when they compare the number of engineers the US and China produce, and come to the conclusion that somehow we are falling behind.

While an Apple production facility in China can hire 100,000 Industrial Engineers to run their factories...1 Chinese IE is equivalent to 0.01 US IE...just as the productivity of 1 Chinese worker is the equivalent of 0.01 the productivity of a US worker.

It's the long-term trends that are shifting the balance, not temporary fluctuations in prices of commodities. For China to acquire the same skill level as the US, it will take several more decades, and I'm not sure they ever will catch up (just as Japan surpassed us in the 80s, but the US adapted much faster and eventually surpassed)

I think the 2008 crises helped the US become more efficient and more competitive, in the long run. Lower skill labor left the workplace, and companies were forced to invest more heavily on being leaner. once you acquire those skills, you no longer have to go back to the bloated models of the past. Which means unemployment isn't going to go anywhere fast...but that too is perhaps a blessing in disguise.

 
At 3/13/2012 1:42 PM, Blogger Mark J. Perry said...

Low natural gas prices in the U.S. have made a HUGE difference for energy-intensive manufacturing like chemicals, petrochemicals, iron and steel, fertilizers, etc. There is a manufacturing renaissance underway in the U.S. because of low nat gas prices, America has become a low-cost, very competitive production location for energy-intensive manufacturing... Could be up to one million jobs created according to a study by PriceWaterhouseCoopers.

 
At 3/13/2012 3:35 PM, Blogger AIG said...

"Low natural gas prices in the U.S. have made a HUGE difference for energy-intensive manufacturing"

Yes. As I said, it affects electricity prices. But if these electricity prices still remain considerably higher than in other markets, I can't see how this would have tipped the balance.

Plus, the particular industries you mentioned, aren't the ones which were off-shored, or the ones coming back. They may be ones which are growing today, but this is also due to a lot of other factors (like the availability of raw materials or demand)

What was off-shored were mainly low-energy intensive industries.

 
At 3/13/2012 4:01 PM, Blogger Mark J. Perry said...

The impact on electricity prices has helped, but it's the plants that use natural gas as a feedstock for fuel or as a raw material that have become especially cost-competitive. Much of that production did move overseas when the U.S. was considered a high-cost location due to high energy costs, and of course high labor costs. For example, production of iron, iron ore, iron ore pellets, steel, fertilizers, ethylene, petrochemicals, etc. moved overseas, but have recently started moving back home.

One example: Nucor Corporation is building a $750 million plant to make iron and iron-ore pellets using natural gas near the Mississippi River in Louisiana. Nucor's CEO said the investment wouldn't have been possible without the lower costs that have come with shale gas.

 
At 3/13/2012 4:26 PM, Blogger AIG said...

Sure, additional growth in these industries. But I'm not sure this is "reshoring"; not the "reshoring" that the example you give in your original blog post describes.

I'm not sure how much I agree with this sentence:
"For example, production of iron, iron ore, iron ore pellets, steel, fertilizers, ethylene, petrochemicals, etc. moved overseas"

Petrochemical companies build more plants overseas, but that had more to do with the growth in those markets, than "offshoring" of existing US capacity.

 

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