Industrial Insight

China becomes less competitive…. | May 28, 2011

http://www.thefiscaltimes.com/Columns/2011/05/26/Made-in-America-Manufacturing-Jobs-Are-Coming-Home.aspx

Made in America: Manufacturing Jobs Are Coming Home

By PATRICK SMITH, The Fiscal Times
May 26, 2011

The BCG study, “The Return of U.S. Manufacturing,” makes an interesting case. China’s wages are rising by 15 to 20 percent a year, while its productivity will improve at half that rate. The yuan is gaining in value, too, and Chinese-made products are destined to become more expensive.

The math that went into this study is impressive, and it works like this: Right now, labor costs in China are slightly less than half those of the U.S. when the difference in productivity is factored in. In five years’ time, labor costs on the mainland will be 70 percent of the U.S. figure. Counting costs such as inventory and shipping, the study says, the Chinese cost advantage will drop to single digits or disappear entirely.

  • Caterpillar, which has a major presence in China, is building its next plant to make excavating equipment in Texas, tripling its capacity for such equipment in the U.S.
  • Ford is repatriating 2,000 jobs from China after reaching an agreement with the United Auto Workers that it says it can live with.
  • NCR has already brought its production of automated teller machines back from China to shrink the time from production to market, to stitch divisions closer together and lower operating costs.
  • The toy maker Wham-o (and this is my favorite) is repatriating half of its production of Hula Hoops and Frisbees, most from China, some from Mexico.
  • Recent growth in manufacturing is due partly to a come-from-behind context. True, the U.S. has added 250,000 manufacturing jobs since the start of 2010. Also true: It lost almost 6 million jobs in the past decade, including a third of all employment in manufacturing.
  • Growth in industrial production is concentrated in a few sectors such as oil and computers. “The Case for a National Manufacturing Strategy,” a new study by the Information Technology and Innovation Foundation, a Washington public-policy group, indicates that 15 of 19 sectors, accounting for almost 80 percent of U.S. industrial output—apparel, metals fabrication, machinery, printing, and so on—declined over the past decade.
  • The U.S. strategy, such as it has one, is fundamentally different from those of Europe and Japan. Their manufacturing sectors are stable or better because they have automated drastically (Japan) or gone into high-end production (much of Europe). The U.S., by contrast, has lagged in capital investment and appears set to compete primarily by way of low wages and often costly packages of tax breaks and other incentives.
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I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.

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