Business returns to US as Asia loses edge

Jan 19 2012

By Ed Crooks – The Financial Times

New York. Bruce Cochrane?s family furniture business illustrates what may be the start of a US industrial renaissance.

His story also offers insights into the opportunities and the pitfalls facing manufacturers wanting to build up their US production.

The Cochranes were in the furniture business for five generations, employing more than 1,000 people in the early 1980s. But by 1996 the going had become too hard and they decided to sell out. Under the new owners, their factory in Lincolnton, North Carolina, was closed, the equipment was dismantled and production was moved to Asia.

Mr Cochrane worked for 12 years as an import consultant, advising companies on how to source furniture from Asia to sell in the US. But by last year, he had come to the view it was viable to make furniture in the US again, even against competition from China.

?Back in 2000, the average wage in China was about 50 cents an hour; now it?s $3.50,? he says.

Non-wage costs have also risen in China. The Chinese authorities have become ?much more aggressive? about environmental regulation, he adds. Taking into account the higher productivity of US workers, and shipping costs, the competitive advantage of Asian manufacturing was disappearing, he said.

So last year, he announced that Lincolnton Furniture would open up production of high-quality wooden beds, tables chairs and cabinets in his family business?s old plant. ?The ?Made in the USA? label is more important now than it?s ever been. People are looking for American-made,? he says.

?I?m convinced that our timing is exceptionally good.?

He is not alone in that view. Plenty of economists and business leaders believe that US manufacturing is entering an upturn that is not just a bounce-back after the recession, but a sign of a longer-term structural improvement.

Manufacturing employment has grown faster in the US since the recession than in any other leading developed economy, according to official figures. Productivity growth, subdued wages, the steady decline in the dollar since 2002 and rapid pay inflation in emerging economies have combined to make the US a more attractive location.

?Over the past decade, the US has had some huge gains in productivity, and we have seen unit labour costs actually falling,? says Chad Moutray, chief economist at the National Association of Manufacturers. ?A lot of our members tell us that it sometimes is cheaper to produce in the US, especially because labour costs are lower.?

The increased competitiveness of US production has been reflected in the past couple of years in job creation announcements from Ford, GM, Caterpillar, Sleek Audio, Farouk Systems and many others. President Barack Obama recently called it a ?hopeful trend?.

However, Mr Cochrane highlights a problem that faces many manufacturers in the US. Although there was a substantial population of unemployed and under-employed former furniture workers in Lincolnton, many did not know how to use the latest equipment.

?People have to be retrained for the new machinery,? he says. ?Even people with experience of computer-aided woodworking machinery are amazed at the new technology that?s available.?

It is a common refrain from US employers; the flipside of the improvement in productivity. Modern factories are now highly sophisticated, using automation and other advanced technology. This enables them to compete against producers in China while still paying much higher wages. The result, however, is that they need fewer people, and they tend to be more highly skilled.

Mei Xu is a Chinese-born entrepreneur who has become a standard bearer for ?re-shoring? production in the US. Chesapeake Bay Candle, her company, employs about 120 of its 2,000 staff in factories in Maryland and California.

At a meeting at the White House last week to discuss what the administration has dubbed ?insourcing?, she stressed the need for workers with the right skills and aptitudes.

?We really need high school kids to get some vocational training,? she says. ?They need the skills to be able to work in a factory that is entirely automated. Workers in their 50s may be willing to work, but may not have the computer skills to use the technology.?

James Guyette, the chief executive for North America of Rolls-Royce, the aero-engine company, who was also at the White House meeting, agrees that ?the education system must improve?.

Rolls-Royce is creating about 600 highly skilled jobs in the US, but has cut some lower-skilled ones, so the net gain in its employment is lower. The company is working with universities, colleges and even schools in an attempt to raise skill levels in the states where it has its plants and research and development facilities.

Mr Guyette warns that however strong the recovery, the labour market will never return to what it was.

?Many of the jobs that have been lost in this country are never coming back,? he says. ?And those are the low-skilled jobs.? The Financial Times

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