Posted on 04/23/2012 2:48:46 PM PDT by blam
A New Trend “Sneaking up on People”
By Chris Mayer
04/23/12
China has lost its edge.
There was lots of skepticism about a piece in my March letter called “The Great Comeback No One Will Believe” about the revival of U.S. manufacturing as China loses its cost advantage. But I continue to find evidence that the piece was spot on.
I had a good talk with Scott Huff, a principal at Innovate International, which does product development work and contract manufacturing for several industries. Scott’s story is worth passing on because the arc of his career in the last 10 years tells the story better than any set of statistics.
Scott is a design engineer. He started going to China in the mid-1990s to do work for clients. Huff was living in Chicago at the time. Every year, the travel got heavier as more and more clients manufactured in China. “So in 2004, after spending three months in the country in two-week blocks in the first half of the year, I figured maybe I ought to just move here,” Scott recalled. “My wife is pretty adventurous. So we moved lock, stock and barrel to Shenzhen and started rebuilding the business there.”
There were tons of opportunities, and the business grew. Things went well. Then, last year, it started to change.
“In the middle of last year,” Scott said:
I realized it when I was getting price quotes for some injection-molded plastics. Chicago used to be a center of excellence for this, and it’s since been decimated by overseas competition. But there were a handful of the old hands that survived. They kept up with the technology and got very lean and efficient, using electric presses and things like that that reduce cycle times and labor.
He continued:
Suddenly, prices from them weren’t that different from what you could get in China when you factored in transportation costs. It looked better and better as we took another big labor increase in China in the third quarter of last year. Of the last four out of five jobs I quoted for injection molding in the U.S. versus molding in China, the U.S. won. Most people don’t believe me when I tell them I’m getting better prices in the U.S. The first instinct people have, the paradigm that they’ve learned to live with, has been to bid work in China.
Your editor sympathizes with this. I’ve had a lot of people shake their head in disbelief and call me crazy when I tell them it is (sometimes) cheaper to manufacture in the U.S. now. But here you have a real-world tale from a man on the ground seeing this new trend unfold in real time.
“Things are getting expensive in China, pure and simple,” Scott told me. “Labor costs have gone up substantially in China. That’s not a mystery to anybody. The amount of labor available at any price for some jobs is just not there. If you want to polish a piece of stainless steel for the kitchen industry or tie rawhide pet treats, you’re going to have a tough time finding people. People have options. They’d rather put together an iPad now.”
Even though labor costs have surged, one could argue they have not kept pace with the cost of living. “Food prices in China are ridiculous,” Scott says. “It’s a hell of a lot cheaper to live in the United States than it is in China if you equalize people’s incomes. As a percentage of someone’s income, the chunk for food is a huge line item there. Land prices have been skyrocketing everywhere. Apartment prices are through the roof. It is cheaper to live in the U.S.”
Remarkable, isn’t it?
So business is just starting to move away from China. Manufacturers are seeking out cheaper markets in Southeast Asia. Scott has a new plant there already, in Cambodia. “Cambodia is small but in a good location,” Scott says. “Right in the middle of everything, really.”
His company is also moving business to the States. When I caught up with Scott, he was in Knoxville, Tenn. He is still a resident of Shenzhen, China. That’s where he officially lives. But his kids are going to school in Tennessee, and he is looking to build a business back in the States. It’s a complete reversal of what happened eight years ago.
“I don’t think anybody has any idea that’s happening,” I said.
“It’s sneaking up on people, but they’re going to realize it. The handfuls of survivors in the molding industry in the U.S. are busy as hell right now. It’s not just the plastics industry. Anybody that was left here with manufacturing intact is getting extremely busy.”
“So it seems there would be an opportunity in U.S. manufacturing,” I said. Scott agreed, with a caveat.
“There is an issue that we’re battling. The U.S. lost an entire generation of toolmakers. They’re just not there. The old Polish toolmakers I used to work with in Chicago have all retired, or if not, they are more gray-headed than I am. And there aren’t the apprentices ready to step in. You can’t find a good toolmaker in Chicago right now. It’s hard to come up with. And the skill set — you can’t just turn it on and off like a faucet.”
This is something people — especially political types — overlook. It’s not just a matter of bringing back the jobs. The skill set has to be there, and that takes time to build.
“Technology changes, too,” Scott added, “so it is extra hard to find someone who’s kept up with it all. You can still cherry-pick and pull out a tool in Asia and bring it to the U.S. You just have to figure out a way to maintain it without a toolmaker.”
“Wow,” I said, “that’s a complete reversal of what went on before where people would take machines from the U.S., disassemble them and ship them to China.”
“I was one of them,” Scott said. “Now I’m designing products from China and carrying them to Chicago for production. Touch base with me in a couple of months and I’ll let you know how it went.”
I said I would. In the meantime, we’ll continue to watch this story. China losing its once-formidable cost edge would have a sweeping impact on manufacturers everywhere. Stay tuned…
china’s edge: treating people like drones. look how it all falls apart when they demand to be treated like humans.
Just so long as Unions don’t scuttle it.
Scott = Free Traitor.
Interesting. BFLR
But they never, or almost never, tell us to what level those 'expensive' wages have reached in China. One article I read several months back said minimum wage in some areas of China was now $1.59. Guess the Chinese are no longer willing to work for $.50 an hour, but many in Cambodia and Vietnam still are.
More specifics on those production costs would be informative, but they just rarely provide any specifics.
No. He’s a survivor. When the industry dies is he supposed to just cash it in?
No industries that moved to the slave labor world were dying. That is myth. All it took was to make a few MORE cents on the dollar and it was screw the USA hello commies. The man deals with commies in a daily basis and has no problem with that.
There are 22 Right-To-Work states to move to also. He is a traitor and I hope he never comes back.
There are 22 Right-To-Work states to move to also. He is a traitor and I hope he never comes back.
You got it backwards. The promise of free traders was that Americans would have the advantage of technology (robots and the like) and use advanced technology to compete against cheap foreign labor competition. Well in the meantime both Republicans and Deomcrats opened the borders to cheap immigrant labor. This cheap labor undercut our businesses who would have otherwise invested in technology like Scot now sees in Chicago. The concept of free trade is sound. Unequal application to the rules is a problem. Illegal immgration is unfavorable to America. The Value Added Tax applied to American goods while at the same time we do not put an equivalent tarrif on foreign goods is another unfavorable practice. Thank your trade negotiators from both parties for our screwing.
Half the population with IQ’s below 100 could work and survive when we had a manufacturing base. Now they just suck off the teat. The national defense, social, political and economic problems caused by free trade are not out weighed by saving a few pennies on the dollar at retail. That’s the way I see it, the whole thing is insane.
It’s not all about labor rates. It’s about regulation. OSHA, EPA and taxation of captital. Industries like plastic injection molding and metal stamping were disfavored in all these areas and year after year became less competitive on a world scale. I lived it as a machine tool distributor. Every year I lost customers as more of them went out of business and the remainders downsized.
Boy, you authoritarian types (you know who you are, the ones who want government to regulate us for our own "best interests") sure do have a beef against freedom, don't you. To call anyone who favors freedom a "traitor" is not conservative.
Why don't you just go change your registration to Democrat and be done with it if you can't stand freedom.
Scott lives in China and does business with Communists while undercutting the USA destroying the manufacturing base forever, and to think Jane Fonda got a bad reputation. KMA. None are so blind that will not see.
Who would have ever thought it?
There will be a resurgence in manufacturing in the US, BUT there won't be that many jobs. Technology has been the prime reason for the drop in manufacturing jobs -- not free trade. That trend will continue.
You union thugs all sound alike.
When I was fighting against NAFTA, one of the things I found out was the export-to-Mexico figures the govt were boasting about included the value of the machines that were pulled out of our factories and shipped down there.
Many of the machines my customer (companies) sent to Mexico were basically no longer legal to operate within the United States due to changing OSHA regulations. The guarding requirements were so stringent and the controls were basically too obsolete to accept the more flexible point-of-operation guards.
Sometimes those machines were replaced by more modern, and productive machines. But it wasn't a one-for-one trade. Usually 3 or 4 obsolete machines were replaced by a single machine. Meaning 3 press operators (per shift) lost their jobs.
So you BELIEVE that if OSHA and the EPA didn't exist the sellout of us industries over the last 20 years would have played out differently? You are full of it. I would get rid of both of those agencies but doing that would have no effect on the sell out. EPA and OSHA are perfect scapegoats for the GLO-BULL-IST
I’ll overlook the personal attack... this time. I’m not saying that you are incorrect. Only that your explanation is incomplete. I’m offering you the extra pieces to the puzzle.
Incidentally, the impulse for globalizing industry & trade was spurred to prevent increasingly destructive World Wars. Helping Europe & Japan re-industrialize after WW2, for example, was a way to prevent their societies from being de-stabilized by extremists. In those cases we were wildly successful (in security terms). Unfortunately, we kept following that model in parts of the world that do not share basic Western values. These attempts have been failures.
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