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Industry official: U.S. manufacturing will never be the same
Overseas competition killing low-skill jobs
Rich Rovito

The prolonged economic slump has forever changed the manufacturing sector, forcing companies to re-evaluate the way they do business as they face intense competition from around the world.

This was the message delivered to a select group of manufacturing executives invited to attend a roundtable discussion that kicked off the "Manufacturing Matters" conference May 5-6 at the Midwest Airlines Center in Milwaukee.

"This isn't just another business cycle. Nothing will ever be as it was," said Phyllis Eisen, vice president of The Manufacturing Institute, a Washington, D.C.-based arm of the National Association of Manufacturers. "This is a period of transition."

The recovery is the slowest on record, Eisen said, and has created a crisis in the manufacturing sector, with U.S. companies permanently losing business to low-cost overseas competitors.

Although there are signs of hope, such as increased factory orders, the manufacturing sector "is still hemorrhaging jobs," she said.

Wisconsin manufacturers alone have shed 88,000 jobs over the past three years.

"Some of these jobs are gone forever," Eisen said. "What's left are high-skilled jobs."

It's "fantasy" to think that low-skill jobs that have been lost to Mexico, China and other countries will ever return to the United States, she said.

"I don't know what's going to happen to poor people," she said. "If they don't have skills, they won't be part of society."

Although low-skill jobs are disappearing, manufacturing jobs that require higher-skill levels are in demand, Eisen said. The challenge is turning young people on to careers in the sector, she said.

Most students view factory jobs as "dark and dirty," unaware that manufacturers can provide family-supporting jobs, she said.

High school students are pushed by teachers and counselors to attend college, with little thought given to technical or trade schools, she said.

"The thought is that you're first-class if you go to college and you're a loser if you go to trade school," Eisen said.

Students must be allowed to see the relationship between manufacturing and technology, she said.

"I wouldn't let a kid out of eighth grade without visiting a modern manufacturing floor," Eisen said.

In order to secure the long-term health of the country's manufacturing sector, funding needs to be preserved for organizations like the Wisconsin Manufacturing Extension Partnership, Eisen said. The Madison-based organization provides small and midsize manufacturers with consulting services on advanced manufacturing technologies and business practices that are intended to boost revenue and overall efficiency. It has been battling to maintain federal and state funding.
Concerns about China

The discussion also touched on perhaps the most immediate threat -- low-cost manufacturers in China.

"China is going to be to this decade what Japan was to the 1980s, but blown up to 20 times the size," Eisen said.

The threat is heightened by China's undervalued currency, she said.

Chinese manufacturers are quoting projects at less than the cost of raw materials for U.S. manufacturers, said Paul Ericksen of the Wisconsin Supplier Development Consortium, a manufacturing group that fosters relationships between the state's suppliers and original equipment manufacturers.

"The Chinese have the power to take away our manufacturing base," he said.

It's key for small and midsize suppliers to enlist the help of original equipment manufacturers if the state's manufacturing sector is to remain viable, Ericksen said.

"If I can save 30 percent by going overseas, I have to do it out of responsibility to our shareholders," Ericksen said.

However, manufacturers that are flexible to customers' needs often are able to win orders away from companies that compete on cost alone, provided they are "ballpark competitive" when it comes to pricing, Ericksen said.

Keith Peterson of Humane Manufacturing in Baraboo said he can retool his manufacturing operation in about half an hour, which gives his company an advantage over inflexible, low-cost competitors. By running a more efficient operation, Humane Manufacturing, which makes rubber flooring from recycled products, is able to charge higher prices than its overseas competitors, he said.

State Rep. Terri McCormick (R-Appleton), who hosted the roundtable discussion, said there are also domestic threats to Wisconsin manufacturers. Other states offer incentive packages that make it attractive for manufacturers to relocate their operations. Government regulations and high business taxes also pose hardships for Wisconsin companies, she said.

"We must, as a state, be collaborators and supporters of jobs," she said.

Eisen claims the Bush administration has vowed to make manufacturing a priority, a pledge Peterson said he has heard from prior administrations with few results.

"There are more roadblocks than assistance," he said.

These parts are supplied from Japan, Taiwan, and China."

This is rarely true in the modern auto industry. Automobiles are manufactured, not assembled. They are not like Dell PCs.

The major parts suppliers must be close to the final manufacturing plant, especially with Japanese maufacturers, because of their use of just-in-time, zero inventory manufacturing.

In and around Tuscaloosa Alabama, home of the Mercedes M3 SUV plant, there are numerous supplier companies. The same is happening in Montgomery Alabama, home of the new Hyundai plant. Numerous Hyundai suppliers are building plants in the Montgomery area.

Obviously some things will be shipped in, however, labor continues to represents the largest cost component of most large machines. In fact, that is why Nissan, Toyota, Honda, BMW and Mercedes came to the US. Our labor is cheaper than Japanese or German labor, and the quality of our workforce is just as good (especially when the UAW is not involved).