Lots of Reasons
Why are companies choosing to manufacture in the United States? There are various reasons, not all of which are under manufacturers’ control. But the list of factors that led one company to open an American plant paints a largely positive picture of the merits of U.S. production.
Companies that could manufacture anywhere are increasingly choosing to do so in the United States. I think this is great news, and I think practically all the readers of this magazine would agree. It’s not just American companies choosing this, but also companies from other countries, including China. Recently, Chinese-owned makers of boots, buses, copper tubing, kitchenware, laptops, yarn and 3D printers have all announced or opened new plants in the U.S. What accounts for this? Why the renewed interest in U.S. manufacturing?
Actually, the question is hard to answer with certainty. Enough different factors influence the strength of U.S. manufacturing that sorting out their relative weights is difficult. Making the matter more difficult is this: Those factors lie along a spectrum, an emotional spectrum, because we like certain answers better than other ones.
At one end of the spectrum, for example, is the fact of U.S. competitiveness. The output per unit of cost or labor in U.S. plants is better than that of manufacturing sites elsewhere. This is fitting cause for pride. But at the opposite end of that spectrum is the Federal Reserve, and the fact that the expansion of the dollar supply (“printing money,” though dollars are mostly digital now) has made U.S. manufacturing cheaper.
In terms of emotional appeal, I prefer one of these explanations for manufacturing’s success a lot more. I even feel compelled to defend one against the other. After all, if competitiveness is the cause of success, then we are victors. But if monetary policy is the cause, then we are riding a boat lifted by bankers. Certainly both factors are in play, competitiveness and currency together, but I care about U.S. manufacturing enough that I am rooting for one of these factors to be the one that tells the larger part of the story.
This awareness of my own emotional investment in the question, this sense of wanting certain storylines to be true, is why I found a recent Washington Post article so refreshing. Arnold Kamler, the CEO of Kent Bicycles, allowed himself to be quoted candidly describing why his company, which currently makes bikes in China, will be opening a plant in South Carolina.
The caliber of U.S. manufacturing employees was one consideration, he said, but not the only one. The rising costs in China and the corresponding cost-competitiveness of the U.S. are also a factor, yet the day-to-day costs in one location or another were never enough alone to drive the decision. He offers a positive picture of U.S. manufacturing, but also one that doesn’t strain credibility by including only the flattering details. In describing why Kent chose U.S. manufacturing, Mr. Kamler says all of these factors figured in:
1. Cost. Yes, labor cost in China is rising, as are other costs (such as energy). While this change alone would not be enough to drive a major shift in manufacturing, it provides a basis for also considering the other, less measurable factors.
2. Worker commitment. Mr. Kamler has been concerned by what he views as an increasingly “apathetic” attitude among production personnel in overseas facilities. The distraction of cell phone use on the production floor is a significant problem. By contrast, he found what he regards as a serious attitude toward production-floor work in South Carolina. A number of the workers he observed were committed to their manufacturing jobs because they were parents basing their families’ livelihoods on this work.
3. Foreign demand. International business is doing so well that Kent expects to be able to sell all of its current overseas production outside the U.S. This makes it easier for the company to open a U.S. plant, because it means the shift will not subtract from production overseas. The new U.S. capacity is an alternative to an overseas increase, not a shuttering of capacity elsewhere.
4. State competition. State and local governments are competing for manufacturing. New Jersey and South Carolina bid to win Kent’s plant. Part of the winning offer from South Carolina was the commitment to train Kent’s workers for free.
5. Shifting opinion. In the 1990s, offshoring was in vogue, says Mr. Kamler. The ostensible reason was cost savings, but manufacturers were encouraged by large buyers (retailers, for example) to look to offshore production even if the cost savings were small. Now, that has changed.
Wal-Mart recently expressed its current preference to Kent. The retailer encouraged the bike maker to shift some production to the U.S. That encouragement went a long way toward giving Kent the confidence to proceed.
This last factor, the role of shifting preferences, seems as though it belongs on the negative end of that emotional scale. It leaves domestic manufacturing riding fashion rather than winning on its merits. But then again, perhaps the admission of this factor deserves to be seen as a positive. The news that offshoring was driven to some extent by opinion hints that the seeming rejection of domestic manufacturing was not warranted after all. It also hints that popular support for U.S. manufacturing could be a powerful force for defending and advancing it.