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Manufacturing In U.s. Makes More Sense Than In A Generation

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One for all you China bulls

http://mjperry.blogspot.com/2011/03/manufacturing-at-home-makes-more-sense.html

Here's an interesting article titled "Made in America: Small Businesses Buck the Offshoring Trend," about how some manufacturing is being brought back to the U.S. from China, especially for smaller American firms, because of: a) rising labor costs in China, B) inconsistent quality, c) shipping costs that have doubled in the last year (see chart above), and d) the lack of safeguards on intellectual property. Here are some key paragraphs from an article that suggests that America's manufacturing sector can look forward to a bright, dynamic and thriving future:

"For U.S. firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and U.S. manufacturing is no longer as expensive. As the labor equation has balanced out, companies—particularly the small to medium-size businesses that make up the innovative guts of America’s technology industry—are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet.

When accounting giant KPMG International recently asked 196 senior executives to list their top concerns for 2011 and 2012, labor costs ranked below product quality and fluctuations in shipping rates and currency values. And 19 percent of the companies that responded to an October survey by MFG.com, an online sourcing marketplace, said they had recently brought all or part of their manufacturing back to North America from overseas, up from 12 percent in the first quarter of 2010. This is one reason U.S. factories managed to add 136,000 jobs last year—the first increase in manufacturing employment since 1997 (see related CD post here).

The U.S. certainly isn’t on the verge of recapturing its past industrial glory, nor can every business benefit by fleeing China. But those that actually build tangible goods should no longer assume that “Made in the USA” is an unaffordable luxury. Unless a company is hell-bent on selling the cheapest goods possible, manufacturing at home makes more sense than it has in a generation.

China’s big manufacturing advantage has been cheap labor, but wages—while still low compared with those in the U.S.—have risen sharply in recent years (see chart below).

Manufacturing wages more than doubled in China between 2002 and 2008, and the value of the nation’s currency has risen steadily. It’s now under tremendous international pressure to let the yuan appreciate even more, and the country must cope with worrisome inflation at home (food prices rose by nearly 12 percent last year). And though Chinese workers still earn a fraction of what their American counterparts do, the rising costs of labor there are prompting companies to reevaluate their production strategies. Once they do, these businesses often realize something profound: China isn’t the great deal they expected."

Conclusion: "In dynamic systems such as supply chains, the tighter the connection between nodes, the lower the risk of something going haywire. That risk can be tolerated when the benefits of stretching the connections are too great to ignore. But when those benefits diminish, it’s time to consider building a system that is stable by design. And once America’s formidable innovation muscle is focused on keeping manufacturing nearby, new and inventive systems for reducing labor costs (see chart above)—without going overseas—will be developed quickly."

You'll need to go to link to see the purdy pictures, but I think the commentary says it all. Only competing on price and being overly reliant on exports and infrastructure, China is going to suffer.

Edited by FaFa!

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I was talking to a Roland rep yesterday and he said manufacturing of the upscale keyboards was being switched to the US.

HSBC's long range forecast found that the US would do well in the coming decades due to a younger population, decent infrastructure and vast amounts of natural resources (any enough oil to last for years if the green people are moved away from Alaska and offshore).

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I was talking to a Roland rep yesterday and he said manufacturing of the upscale keyboards was being switched to the US.

HSBC's long range forecast found that the US would do well in the coming decades due to a younger population, decent infrastructure and vast amounts of natural resources (any enough oil to last for years if the green people are moved away from Alaska and offshore).

also more automation and robotics will save the US and Europe ....

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I was talking to a Roland rep yesterday and he said manufacturing of the upscale keyboards was being switched to the US.

HSBC's long range forecast found that the US would do well in the coming decades due to a younger population, decent infrastructure and vast amounts of natural resources (any enough oil to last for years if the green people are moved away from Alaska and offshore).

Music to my ears.

The banks go to China - good riddance HSBC and some of the manufacturing comes back.

Now that's what I call building a sustainable economy :).

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Yes but it's not as easy as just building new factories , you have to rebuild the entire supply chain.

Still , the main issue in the way is Obamas insane 'green' policies - trying to shut down coal powered plants even though China is opening up one a week.

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Music to my ears.

The banks go to China - good riddance HSBC and some of the manufacturing comes back.

Now that's what I call building a sustainable economy :).

The big manufacturers could provide some form of subsidised accommodation to their skilled employees to keep production costs down and imports up.......many large companies used to do that in this country years ago, many large companies still do in other parts of the world.

High cost of living and housing is a big reason why wages have to be so high meaning production in the west is so uncompetitive. ;)

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Also the internet gives a good platform for the USA made goods.

Walmart hasn't stocked them much for years and Walmart makes up something like 7% of US retail sales.

By reducing the middle mans cut the US made goods are far more competitive and easier to find online.

Edited by Ruffneck

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b) inconsistent quality

he's wrong about that. The quality is consistently total sh1t.

I've got Japanese hifi components that I bought in 1975 that still work - Chinese manufactures are total and absolute crap. Worse than crap 'cause you have to pay all the product oncosts such as shipping, packaging, road transport, warehousing, finance, sales and marketing etc etc.

This has been simply the worst period in modern industrial history. Can't end soon enough.

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I was talking to a Roland rep yesterday and he said manufacturing of the upscale keyboards was being switched to the US.

I work for a company named after a well known ketchup brand. My customer has moved production of their products back to Col Springs because ... ... .. "its cheaper" :o

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Still , the main issue in the way is Obamas insane 'green' policies - trying to shut down coal powered plants even though China is opening up one a week.

Not exactly a sound long term strategy though is it? Especially given the fact they NEED to open a new one every week.

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he's wrong about that. The quality is consistently total sh1t.

I've got Japanese hifi components that I bought in 1975 that still work - Chinese manufactures are total and absolute crap. Worse than crap 'cause you have to pay all the product oncosts such as shipping, packaging, road transport, warehousing, finance, sales and marketing etc etc.

This has been simply the worst period in modern industrial history. Can't end soon enough.

[/i]

I have a pretty ancient Onkyo receiver that is working perfectly and an even older Panasonic CD player that works 100%--both Japanese. My Made in Japan Sony Triniton (1987) packed in about 4 years ago!

More than that, I have a 1992 Mazda MX-5 and it starts first time every time. Hardly any rust or corrosion--fabulous Jap quality. Its garage mate is a Mazda 6--still made in Japan and it is, IMO, the closest Asian to the German Trinity.

I used to be into Nikons and had one of their Chinese lenses go bad on me and made the switch to Canon as nearly all their camera gear is still made in Japan. I am horified at the amount of once iconic gear is now being made in China including Allen and Heath mixing desks.

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I was talking to a Roland rep yesterday and he said manufacturing of the upscale keyboards was being switched to the US.

HSBC's long range forecast found that the US would do well in the coming decades due to a younger population, decent infrastructure and vast amounts of natural resources (any enough oil to last for years if the green people are moved away from Alaska and offshore).

I get sick of saying this but "never short the US". I won't.

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interesting subject.

i'm also of the opinion that manufacturing in china is overrated and that a substantial amount of manufacturing will move back to the west

Company i work for has built ships in China for over ten years. Quality from some of the yards is worse today than it was ten years ago. Granted, some shipyards we use are OK (not good, just Ok) but you pay considerably more. We have also noticed that as commodity prices have gone up the chinese have skimped on materials making the quality even worse.

The problem is deeply embedded in the Chinese mentality. they have no pride in their work, or what they are doing. it's just a means to an end to make a fast buck so why bother to do it well? also they think nothing of reneging on contracts, substituting agreed materials with lesser quality ones and outright lying. to be honest, the window is shrinking and the benefits of manufaturing in china are diminishing year by year.

We send teams out there on rotation to supervise the chinese yards. some of our best guys have gone there with the best intentions, to pass their knowledge on to the chinese and improve the way they work. never works. Even the most idealistic and patient come back broken men.

Japan on the other hand is a different class altogether. excellent quality, always delivered on time, lasts for years with minimal maintenence. one experience i had out there sums up the japs very well. we were due to take delivery of a vessel at 0830hrs and the yard director approached us bowing and apologizing. he was deeply embarassed that there would be a delay in the launching of the ship. how long , we asked ? We were worried that if it was a week or two we would incur quite a lot of expenses. About twenty minutes he said. We nearly burst out laughing - the chinese will delay by 6 months and then STILL not deliver on the day they're supposed to !

the concept of quality is part of the national psyche. germans have it, so do the japs. care, attention, pride in your work and who you are.

chinese don't have it, and never ever will.

that's why china will always produce tat.

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I get sick of saying this but "never short the US". I won't.

Never get sick of saying that. The US has natural resources, has room to grow its population and Ferguson's six "killer apps" (which I broadly agree with) - competition, science, democracy, medicine, consumerism and the work ethic. People who immigrate into the US generally sign up to the culture, something noticeably absent in Europe. I am bullish on the US - they can survive a reset. If it comes to it, I don't think China can.

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the concept of quality is part of the national psyche. germans have it, so do the japs. care, attention, pride in your work and who you are.

Reading that makes me sad as I entirely agree. We used to have that in the UK (I think!) but not any more. Worse than that, the attitude is often sneered at. Nation of sodding jobsworths and spivs we have become.

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Reading that makes me sad as I entirely agree. We used to have that in the UK (I think!) but not any more. Worse than that, the attitude is often sneered at. Nation of sodding jobsworths and spivs we have become.

The British built some great ships once upon a time. Some of them are still revered today as masterpieces of modern engineering, far ahead of their time.

It will come back. The wheel turns.

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I have a pretty ancient Onkyo receiver that is working perfectly and an even older Panasonic CD player that works 100%--both Japanese. My Made in Japan Sony Triniton (1987) packed in about 4 years ago!

More than that, I have a 1992 Mazda MX-5 and it starts first time every time. Hardly any rust or corrosion--fabulous Jap quality. Its garage mate is a Mazda 6--still made in Japan and it is, IMO, the closest Asian to the German Trinity.

I used to be into Nikons and had one of their Chinese lenses go bad on me and made the switch to Canon as nearly all their camera gear is still made in Japan. I am horified at the amount of once iconic gear is now being made in China including Allen and Heath mixing desks.

Mazda have/had a partnership deal with Ford, so that Mazda 6 is largely the same as a Mondeo, or maybe Focus?, underneath. That probably accounts for why it feels more 'German', or at least more European. But then it's probably manufactured to a higher standard than the Ford, although there's not much difference in it nowadays.

I've got a RX-8 and although it is supposedly unreliable because of the funny engine it's never had any problems in 3 years, not even little niggles. Bugger to sell on at the moment though because of the low mpg.

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Interesting comments here. I have something to add that might pinpoint the problem a little more.

I work in HE and we've been chasing the Ren for a number of years now in the guise of international students. Academics go on trips etc ... What has come back is very interesting: rooms full of top end equipment, state of the art lecture halls, but there's no one in them, because there is no one to teach the subjects.

In short, China, ironically, just doesn't have the people. It hasn't invested properly in its people for centuries, so there's no solid stratum of of experienced, knowledgeable minds, particularly in applied and theoretical STEM, that can pass their skills onto the next generation and build a source that would enable them to drive their economy forward outside of contract manufacturing for the West.

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I get sick of saying this but "never short the US". I won't.

whats happening in the world isnt just a fall of the US but a rise in the developing world with brazil, india, china.

for the US, because its the leader, to grow from this point in time is a lot harder than for a developing country to catch up.

so the fall in the US is relative, rather than absolute.

also when government debt hits 20 trillion this is going to put a dampener on growth like it has with japan.

due to the massive debts japan went from the second most properous nation on earth to, after 2 decades of stagnation, around 25th in the world for GDP per capita.

the UK has a higher GDP per capita than japan now, which is suprising.

you maybe the best, most innnovative, most profitable company in the world e.g like apple, but you saddle the balance sheet with $100billion of debt and that company will struggle now matter how good they are.

Edited by mfp123

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Never get sick of saying that. The US has natural resources, has room to grow its population and Ferguson's six "killer apps" (which I broadly agree with) - competition, science, democracy, medicine, consumerism and the work ethic.

shame about the oil though. This is the worst time in history to be growing your population, have a young population or planning to practice consumerism.

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Yes but it's not as easy as just building new factories , you have to rebuild the entire supply chain.

Still , the main issue in the way is Obamas insane 'green' policies - trying to shut down coal powered plants even though China is opening up one a week.

But A) How long has Obama left? and B) I thought that he was somewhat emasculated after the mid term elections?

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the concept of quality is part of the national psyche. germans have it, so do the japs. care, attention, pride in your work and who you are.

chinese don't have it, and never ever will.

that's why china will always produce tat.

Short memories.

"Made In Japan" used to be synonomous with "Soon Falls Apart". South Korea in the early 60's had wages no different from China today, yet now their wages are roughly on par with the west.

China's still in their infancy, the country that gave the world pivotal inventions from paper to gunpowder won't stay making flip-flops for long.

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Music to my ears.

The banks go to China - good riddance HSBC and some of the manufacturing comes back.

Now that's what I call building a sustainable economy :).

It's interesting that the Hong Kong and Shanghai Banking Corporation more or less behaved itself during the grab 'n greed during last 15yrs coz many senior corporates must be a short 'head' away from Sino mandarin chopping blocks.

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Reading that makes me sad as I entirely agree. We used to have that in the UK (I think!) but not any more. Worse than that, the attitude is often sneered at. Nation of sodding jobsworths and spivs we have become.

You say "we" - it's wholly corrupt & dishonest leadership!

In fact it is the corruption and theft at high level in all parts of our Society.

From local councils, courts to Govt.

The whole of the City which are put in charge of our collective finance/pension money etc are corrupt thru whom our corrupt leadership (as major shareholders/'hidden' part owners/sleeping directors etc) extort monies from the general population.

The average prole is too dumb/disinterested/distracted to realise!

Edited by erranta

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