April 7, 2012

‘Reshoring’ manufacturing starts to make economic sense

When Bruce Cochrane’s family furniture company became an empty factory, he wouldn’t drive by the building, even though it was just a short ride from home. There were just too many memories of what was – and what he was sure would never be again.

When Bruce Cochrane’s family furniture company became an empty factory, he wouldn’t drive by the building, even though it was just a short ride from home. There were just too many memories of what was – and what he was sure would never be again.

Five generations of Cochranes had been furniture makers, starting with his great-great-grandfather, William, who built church pews in the 1850s. By the mid-1990s, though, the long, proud family tradition appeared to be at an end. Like so many other American industries, the furniture trade was moving to China, land of cheap labor.

Cochrane headed there, too, becoming a consultant to furniture makers there, making occasional trips to offer advice. Back in North Carolina, he saw globalization taking its toll. First, fewer and fewer workers in the plants. Then, closed factories. But it took a while to grasp the scope of the loss.

“I didn’t give that a lot of thought at the time,” Cochrane says. “I was making so much money that I did not really dwell on the implications of what I was doing, of what other people were doing. … Later on, I saw how sad it was to see a $50 billion industry move offshore and all the thousands and thousands of jobs that were lost. And I was part of it.”

“That,” he says, “probably bothered me more than anything – seeing the jobs go away.”

More than three years after the factory closed, Cochrane reopened them for a new venture, Lincolnton Furniture Co. Earlier this year, a small work force of about 55 – including several who’d toiled for his late father under the same roof – built the company’s first bedroom and dining room pieces, shipping them to stores with a flag-decorated “Made in America” tag.

Lincolnton is part of a small but growing trend called “reshoring” – a reverse migration of U.S. manufacturers from the Far East (mostly China) to West. With rising labor and shipping costs in China, companies producing appliances, cookware, audio earphones, water heaters and other goods have decided it makes economic sense to move some (or all) of their operations back to U.S. soil.

Cochrane knows he’s doing something risky, that some folks think he’s a bit crazy and believe the furniture business in the U.S. is mostly gone.

He’s confident, though, this is a smart move, and not just because it feels good – which, by the way, it does.

“To do something like this has to be a business decision,” he says, “but it is emotional and it is sentimental to be able to come back and make something again and to impact people in such a positive way.”

What happens in the cavernous factory on Cochrane Road could bring economic security to workers in a state that, by one estimate, has hemorrhaged tens of thousands of jobs to China in the last decade.

But what happens here could also offer larger lessons about U.S. workers in a global market, the appetite for American-made goods and the future of an industry decimated by foreign competition.

Assessing costs

Bruce Cochrane was in China, 8,000 miles away, when he first began thinking about reviving the family’s business three years ago.

Over a decade of consulting, he’d witnessed dramatic changes in China’s economy. Manufacturing workers’ wages – 58 cents an hour, on average, in 2001 – were approaching $3. The once abundant labor supply was drying up. Shipping costs were higher because of rising fuel costs. Quality was suffering because of high turnover. It could take three or more months to get a piece of furniture after it was ordered – compared with 30 days or less in the U.S. The clear-cut advantages of manufacturing in China were disappearing.

That same point was made in a 2011 report by the Boston Consulting Group that estimated that “reshoring” by companies could result in 2 to 3 million new jobs. About a quarter would be directly in manufacturing, and the rest would work for suppliers or service industries.

Furniture, the report said, is among the seven areas where this is most likely to occur. The costs of shipping bulky products and the ample supply of wood in the U.S. make it a prime candidate for domestic manufacturing; China has to import wood.

“The pendulum is swinging,” says Hal Sirkin, the report’s lead author. He says wages are rising 15 to 20 percent a year in China, and U.S. workers are, on average, more than three times as productive

The report predicts that by 2015, these industries will likely reach a “tipping point” where the cost advantages of China will have shrunk to a point where U.S. companies may see it’s to their benefit to return production or set up a new base here.

“It’s still early,” Sirkin says. “We don’t know all this is going to happen, but companies are starting because the economics are starting to look favorable. I was surprised to see it happening as quickly as it is.”

Americans – historically proud of the nation’s manufacturing might – have long been frustrated with the migration of jobs to China and elsewhere. An ABC News/Washington Post poll in February found that nearly 75 percent of those surveyed favor raising taxes on businesses that move manufacturing jobs overseas.

In January, President Obama hosted a White House forum on insourcing, featuring small and large companies that have invested in the U.S. And in his State of the Union speech, Obama called for an economy “built on American manufacturing.” He said the resurgence of the U.S. auto industry “should give us confidence.”

A March trade group survey found expansion in 15 of 18 manufacturing industries, including autos, steel and furniture.

The president’s Republican rivals, meanwhile, also have touted the value of manufacturing and talked tough about China. Mitt Romney has vowed to declare China a “currency manipulator” and impose tariff penalties. Rick Santorum, who has emphasized his blue-collar roots, proclaimed he wants to “go to war with China” to create the best business climate for America.

But predictions about a rebirth of manufacturing and muscular rhetoric about resolving trade imbalances are met with understandable skepticism.

Consider the numbers: More than 5.5 million manufacturing jobs were lost from 2000 to 2011, though there has been a modest recovery in recent years, There are economists who say some jobs are gone forever because of productivity and robotic gains. And U.S. multinationals eliminated more than 800,000 jobs in the U.S. while adding 2.9 million overseas from 2000 to 2009, according to federal figures.

The trade deficit with China – $295 billion last year – has cost nearly 2.8 million U.S. jobs from 2001 to 2010 and almost 70 percent have been in manufacturing, according to a 2011 report by the Economic Policy Institute.

The report’s author, Robert Scott, found that about a third of all displaced jobs were in the computer and electronic parts industry; other areas include textiles, apparel and furniture. North Carolina’s loss of nearly 108,000 jobs ranked it among the top 10 hardest-hit states.

Reshoring “is not only a drop in the bucket ... it’s not making a dent in the growth of the trade deficit,” says Scott. “It’s a classic example of counting trees instead of focusing on the forest. You may see a few trees popping up but the forest is still falling down.”

Made in America

In January, Lincolnton’s first piece of furniture – a cherry-wood nightstand – came off the line. All the workers signed it.

That same month, Bruce Cochrane had two dates in Washington, D.C. The first was the White House conference on insourcing, where he met Obama. The other was an invitation to sit in the first lady’s box at the State of the Union speech, where the president spoke of a manufacturing renaissance. (Cochrane says he’s never voted for a Democratic president.)

Cochrane thinks there’s an appetite for U.S.-produced goods. He attaches a “Made in America” tag to each piece of his company’s furniture, with a message: “We take immeasurable pride in the fact that our furnishings are made of select solid American hardwoods,” he wrote.

“I think people realize that made in America means jobs in America,” Cochrane says. “And they have experience with a loved one or a family member or a friend who lost a job so it becomes more and more personal to them.”

There have been small moments of satisfaction these first months, such as touring the factory with a friend, who said he thought he’d never again smell that earthy scent of fresh-cut wood.

But there have been problems, too. A malfunctioning machine needed fixing and the plant had to be rewired, a costly project.

Within three years, Cochrane hopes to do $25 million in business a year. For now, he’s determined to prove the naysayers wrong.

“People in this industry still don’t believe this can be done,” he says. “I don’t have any doubt at all.”

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