Made in America! Is the Sun Setting on Offshore Manufacturing?

Made in America. It used to mean something. It meant quality, trust, pride of ownership.

Today, however, it may simply mean a sound business decision. With wages in China rising while wages in the United States are going down, a lot of American companies are moving production back onshore because it makes more economic sense.

A recent report by the Boston Consulting Group predicts rising wages in China — along with a host of other factors, including an appreciating yuan and the logistical problems of doing business in China — will usher in a “manufacturing renaissance” in the U.S. over the next five years.

“We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015,” said Boston Consulting Group’s Harold Sirkin. “As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

The shift has already begun. Caterpillar has moved manufacturing of its excavators back to Texas. NCR recently returned production of its ATM machines to Georgia. Wham-O pulled up stakes in China and Mexico and now makes Frisbees and hula hoops in the U.S.

No Longer Worth It

And it’s not only major manufacturers that are moving production back to the U.S. Many small businesses that dipped their toes offshore have decided that, with costs rising overseas, the headaches just aren’t worth it anymore.

Mike Schwarz is the founder of T-shirt maker RibbedTee.com. It’s now one of only a few made-in-America T-shirt brands, having recently shifted all its production back to Los Angeles because the drawbacks of manufacturing in China are no longer justified by the savings.

Schwarz said getting started was hard enough. “If you have no relationships overseas, trying to find a reputable and reliable manufacturer is like throwing a dart at a dartboard.” Then, when he did locate a manufacturing partner, the relationship quickly frayed. He had to conduct all communication via email because the language barrier made phone conversations impractical, and this meant processes that would take a week in L.A. required two months of back and forth with China. His partner there demanded payment upfront and at times delivered shirts Schwarz couldn’t sell.

“In one case I’d given them the bulk of the payment for a job and when the shirts came back the stitching and packaging were all wrong,” Schwarz said. “They refused to fix it or refund my money. In the end, the entire process took six to seven months and I didn’t even get the product I was looking for.”

Hidden Costs

Schwarz survived that foul-up but not every small business is so resilient, according to Todd Lipscomb, author of Re-Made in the USA. “If you’re wholly dependent on somebody from China who you met once, your business could be in big trouble if anything happens,” Lipscomb said. “You can be out of business very quickly.”

He acknowledged that there are economic advantages to production in China but warned there are also expensive tradeoffs–and he can cite a shipload of them off the top of his head: a 20 percent trash rate on items out of the box; substandard quality across the board; dissatisfied customers; environmental pollution; horrific worker conditions; counterfeiting; and the rising price of shipping.

The cost of producing goods in the U.S. could also crater your bottom line, but Schwarz said there are steps a small business can take to mitigate the higher price of manufacturing here. Retailing online only and direct to consumers translates to lower overhead (no physical stores), higher margins, fewer hassles (no chains or distributors to haggle with), and lower marketing costs.

“Once we brought back our manufacturing to the U.S., it allowed us to react more effectively and bring new products to market more reliably and quickly,” Schwarz said. “My best advice for others would be to think about how to reduce costs while still being able to scale. Use technology to automate daily tasks and make them easier. Use virtual staff when needed. Look at nonperforming product lines and discontinue them. Keep overhead low.”

And push your Made-in-America status. Schwarz said at least a quarter of his customers really care where his T-shirts are made, and another quarter at least appreciate it. He’s now incorporating his clothing’s U.S. origin in his marketing campaigns to spread the word.

Good and Cheap

American consumers are coming back to American products. Lipscomb has done surveys that show a year ago about 8 percent of consumers considered country of origin one of the top three factors in purchase decisions. Now, he said, “People are waking up to this issue and about 14 percent are looking at labels before they decide to buy or not. This group is not only growing in size but intensity.”

Given this consumer sentiment and rising costs in China, Lipscomb believes that “for everything but electronics, it makes sense to make it America.” Even the often-outsourced category of apparel, like Schwarz’s T-shirts. Or Texas Jeans, which, Lipscomb said, does what any small business aspiring to made-in-America success should do: keep overhead low and focus on quality. Texas Jeans are made in North Carolina and cost $30. They’re as tough as Levi’s, which are made in China and cost $45.

“Small businesses like Texas Jeans that have survived this tidal wave of chintzy imports have done so not by getting chintzier; they have done it by being better and expecting more from their manufacturing line. That’s the way to fight this onslaught.”

Quality Counts

Lipscomb thinks those items especially well suited to manufacture in the U.S. are personal products. For example, merchandise that touches your skin, food (remember melamine?) and “any product kids can put in their mouth.”

Mark Winslow is the president of Spongex, a North Carolina company that makes children’s products out of foam: booster seats, placemats, changing pads, and more. He believes a small business can profit by manufacturing in the U.S. if it offers innovative, high-quality products that are priced competitively — not necessarily less but not a lot more than competing lines made overseas.

“There’s justifiable concern about chemicals and other undesirable ingredients being used in manufacturing facilities throughout China and other developing countries,” he said. “There’s justifiable concern over lack of adherence to U.S. safety mandates. U.S. consumers, especially savvy new parents, will definitely purchase products they have confidence in.”