Business

United States regains China jobs

Are we seeing the end of outsourcing to China? Maybe. This week the Coleman Co. said it is moving production of its 16-quart wheeled plastic coolers to Wichita from China.

In a recent call with analysts, Martin Franklin, CEO of Coleman's parent, Jarden Corp., said he sees the end of the 30-year one-way outflow of manufacturing from the U.S. to China. Rising costs in China are changing the cost-benefit calculation enough for them to bring production of some goods from China back to North America.

Reports by national consultants and recent articles in the national business press have echoed this sentiment. It even has a name: "reshoring" as opposed to "off-shoring," which is moving production out of the U.S.

But there are plenty of skeptics who say the phenomenon is no more than scattered anecdotes and wishful thinking. What's happening isn't a reversal of the past three decades, they say, but a transformation of the two-way trade into something more complicated — including, possibly, a brighter future for U.S. manufacturing.

Northeast Ohio is celebrating the fact that two manufacturers recently moved production back from China, said Denise Reading, president of Global Corporate College, a national worker training consortium.

That's great, she said, but she cautioned battered Ohioans not to get too excited.

"It will never go back to the way it was before," she said.

Reshoring

What's driving the Coleman decision is a complex cost-benefit analysis.

Coleman competes head on with numerous large and small lower-cost, lower-quality competitors around the world. Over the past two decades it has shipped vast amounts of production to China to lower costs.

The only production it has kept in the U.S. is products that are especially high value, where it's worth paying for American skills, or when the products are too large relative to their cost to pay for shipping.

Plastic coolers fall into the second category. The company already makes some of its coolers in Wichita and now has decided that rising manufacturing and shipping costs tipped the scales to U.S. manufacturing.

Franklin told analysts that the shift appears more or less long-term, so that more and more products will move back to the U.S.

"Prices have moved up to an inflection point to where domestic production now has, in some cases, an advantage," he said.

"So is that going to be a major trend? If you believe the (Chinese currency) will continue to go up, if you believe labor prices there will continue to go up, that Asian economies will continue to expand and their middle classes will expand, etc., etc., then you have to believe that inflection point will continue to tip."

Wages in China are still below those in the U.S., but are rising on average 17 percent a year, according to a recent report by the Boston Consulting Group.

"We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015," firm senior partner Harold Sirkin said in a release. "As a result of the changing economics, you're going to see a lot more products (say) 'Made in the USA' in the next five years."

Chinese wages don't have to equal U.S. wages, they only have to equal these workers' productive value. Because U.S. workers are more productive, they may become a bargain even if they are paid more.

Boston Consulting estimates that wage rates in Chinese cities such as Shanghai and Tianjin will be about 30 percent less than the lowest-cost U.S. states by mid-decade.

That would mean that total manufacturing cost would be only 10 to 15 percent less than in the U.S., according to the firm. Once shipping and storage costs are factored in, the cost advantage will drop below 10 percent — or disappear entirely.

Supply-chain costs

A second critical factor is the cost and vulnerability of long supply lines.

This is the second time in three years that oil has gone over $100 a barrel — and many experts say this is a lot closer to the long-term future price than $30 oil of five years ago.

And the March earthquake and tsunami in Japan disrupted supply chains all over the world. Toyota plants in the U.S. are operating at less than half capacity. General Motors nearly had to halt production at many of its U.S. plants. As companies become more wary of long supply chains, that might play into the cost-benefit calculation.

Products that require less labor or are turned out in low volumes — such as appliances or construction equipment — are more likely to come back to the U.S., according to the Boston Consulting Group report.

High volume and high labor content products such as textiles, apparel and electronics will stay in China, the report said.

Skeptical

But some say they just don't buy the whole reshoring idea.

"No. That's not going to happen," said Ron Pollina, president of Pollina Corporate Real Estate, a national real estate firm based in Chicago.

"The differential is still very substantial. ... There may be a slowdown, but it's not a reversal."

Darin Buelow, a partner with Deloitte Consulting, who assists companies with relocation, said he's seen a few examples of reshoring, but it's too early to say for sure.

"Somebody might be calling it a trend," he said, "but show me the data."

There is at least one industry that has gone through a similar phenomenon already: call centers.

Call center companies a decade or more ago moved aggressively to India and the Philippines to cut costs.

But customers hated it. As a result, some companies announced they were bringing call centers back to the U.S.

The call center industry in the U.S. has added jobs for seven straight quarters, while the industry internationally appears to be shrinking, said Paul Stockford, director of research at the Call Center Research Center.

"I can't say one is causing the other, but that's a pretty strong movement," he said.

A new complexity

Some experts say we are moving to a more complex globalized manufacturing arrangement.

Decisions are now more complicated than simply China win-U.S. lose.

U.S. companies can build in Mexico, as Wichita's planemakers are doing, or Brazil or other locations.

Companies, even Chinese companies, are considering moving low-value production from coastal China to the Chinese interior or Vietnam or Africa.

And, U.S. companies are building in China to supply it and other Asian countries.

"China is now the world's largest auto market, and washers and dryers, too," Pollina said. "And they are growing very rapidly, while our market is decreasing."

Where do the U.S. and its factory workers fit into this?

Buelow said there is data that suggests that the U.S. will continue to have a big role in the future of this increasingly globalized system.

Foreign investment in the U.S. has accelerated over the past decade, creating 250,000 jobs just since 2009, according to FDI Intelligence from the Financial Times.

That means, Buelow said, that foreign companies are evaluating where in the world to put factories and offices — and picking the U.S.

"I'm seeing a lot of foreign firms wanting to come to the U.S. for market reasons," he said.

Even Franklin, the Jarden CEO, said the company isn't bringing everything — or even most of it — back. It's more complicated than that.

"We're still going to be major importers and major manufacturers in Asia," he said. "But for certain products that have relatively low labor content and transportation cost, you will see more and more production (in North America, and) it may not necessarily be the United States. It may be Mexico. It may be Canada. It may be Costa Rica."

  Comments