Manufacturing jobs and orders once bound for China are slowly returning to Indiana, Kentucky and Ohio. Some expect the trend to pick up steam.
For years, the manufacturing industry was plagued with headlines of work going overseas. Now there may be a glimmer of hope that some of those jobs and orders are headed back this way.
One of the first major announcements in the region came from DESA Heating, which has reportedly been bringing back a significant portion of its production work from China over the last year. The state of Kentucky says DESA will invest more than $6 million to improve and expand its Bowling Green facility to accommodate the work.
Company officials cited economic reasons for the move: the rising cost of transportation, a weak dollar and rising living standards for Chinese workers. But while economic concerns are what prompted many companies to send work overseas in the first place, reversing those factors isn’t the only reason jobs and orders are coming back.
Self-publishing giant Author Solutions, for example, recently shuttered a China operation in favor of expanding its Bloomington, Indiana headquarters. The $4.5 million investment will result in 140 new jobs and boost employment to nearly 400, including 80 in Indianapolis.
“It has made sense from the moment we did it,” said Kevin Weiss, president and chief executive of Author Solutions. While Chinese labor costs may seem attractive, Weiss says unless the operation is completely self-contained and doesn’t rely on other parts of the business, cost start to escalate. At his company, sending revisions back and forth to China meant having to wait for work to be done while customers couldn’t discuss things like book and cover designs directly with designers.
“Literally the first time, the very first project that we ran through our shop that we pulled back, you could see the smiles on the faces of the employees and you could hear the (positive) tones from the authors,” Weiss said. “It wasn’t because the people in China weren’t capable, they were capable, but it wasn’t an efficient way for us to address our market requirements.”
Last year, California-based Bertram Capital bought two book manufacturers –AuthorHouse, which started in Bloomington, and iUniverse, based in Illinois – and put them under the Author Solutions umbrella. The company inherited the China operation from its latter purchase. The two lines combined have published more than 80,000 titles from 50,000 authors. In 2007, they were responsible for 1 of every 12 books sold in the U.S.
As it expanded the Bloomington campus this year, Author Solutions launched Wordclay, a free online tool to simplify the self-publishing process, as well as well as Internet-based collaborative photo book making division called Inkubook. The company has also sunk a lot of money into technology upgrades and is now creating a state-of-the-art ERP system to launch soon. Weiss expects Author Solutions add more publishers, acquire more brands and launch new offerings.
Bringing jobs back from China will make it easier to grow, said Weiss, whose only regret was mot making the move sooner. “I was reluctant for a little while to do what I knew I had to do, just because it impacted people and I knew it was going to cost us a lot of extra hours to make the move,” he said. “But, as soon as I saw the thing I should have done it.”
William Gaskin, president of the Precision Metalforming Association, has seen and heard of some jobs moving back from China. For his members, the bigger effect is coming from former clients who began sending work overseas years ago and now are bringing - or are looking to bring - those orders back to American shops.
“It’s not a flood, but there certainly are situations that are developing and we expect this to accelerate,” Gaskin said. “People are citing freight costs, they’re citing the slow but steady appreciation of the Yuan against the dollar finally, they’re citing quality. In a couple of cases, companies weren’t happy with the quality they were getting with their China outsourcing.”
American companies are becoming leaner and investing in equipment to help them stay competitive; and that’s also helping bring orders back. As long as oil costs stay high and American companies stay productive, Gaskin predicts we’ll keep the orders here.
“The decisions that were made to move things to China, especially the component parts, weren’t necessarily sound economic decisions,” he said “When you’re talking about stampings and assemblies, particularly, labor (costs are) insignificant so low cost labor in China doesn’t matter because we have a lot more automation than they have in China. Steel costs have been an issue, but that’s becoming less of one in light of some of these recent (WTO) rulings. Freight costs have become astronomical and the increase in the value of the Yuan against the dollar is also a factor. So we’re returning subassembly and stamping work because it never really made economic sense.”
Another angle to consider: when it comes to manufacturing production shifting back to the U.S., expect to see it more in terms of existing plants expanding operations here instead of sending that work overseas to begin with, said Michael Hicks, an associate economics professor and director of the Bureau of Business Research at Ball State University.
“I think manufacturers are feeling less pressure from unions to hyper-pad wages … the GM model is a thing of the past. Now American workers are competing based on their productivity,” Hicks said. “That still means good wages, it just doesn’t mean a lifetime pension and full healthcare benefits like GM has experienced for a generation or two.”
While conditions like rising wages in foreign countries and the weak dollar mean bringing work back or keeping it here is favorable, Hicks thinks it’s been slow going because no one was sure how long those conditions would last. But he senses a surge could be on the horizon. “Manufacturers are thinking long-term … they’re thinking about the investment lasting over several years,” he said. “I think there are plenty of signs that’s happening and we’re just seeing the beginning of it.”
Bringing jobs back to the United States may also be taking time to catch on because people are reluctant to put their operations under a microscope and determine whether having jobs overseas makes sense, according to Author Solutions’ Weiss.
“I like to think that more people are going to take a critical eye at what they’re doing – whether it be in China, Canada, India, Mexico or wherever – and just focus on the customer experience,” Weiss said. “If you can have the world’s best customer experience with these parts of manufacturing scattered all over the world that’s a terrific thing. But if it places enormous challenges on your business, and your customer ultimately suffers, then I think you really have to step back and say it may be a little more money for me to (bring jobs back to the U.S. or keep them here) but in the long run it’s worth it.”
Now that jobs have started to trickle back form overseas, officials here are poised to make it happen as often as possible.
The Indiana Economic Development Corporation, for example, supported the Author Solutions expansion with up to $575,000 in performance-based tax credits and up to $100,000 in training grants. “Author Solutions plans to in-source jobs from China is yet another indication that Indiana’s economic environment is winning in the global competition for new jobs,” said Mitch Frazier, a spokesperson for IEDC. County and local economic development officials also stepped in with tax abatements to support the move.
Joe Cogliano II is the author of this piece and a frequent contributor to Manufacturing & Technology eJournal. Reach him at joecog2@sbcglobal.net.
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