The beginning of a trend? American companies rethink China

By Phil Boehmke

The honeymoon is far from over, but a number of American companies are bringing jobs back home from China. Master Lock, Wham-O Inc. and General Electric are among those U.S. manufacturers who are increasing their domestic work force and ramping up production here at home. According to the Milwaukee Journal-Sentinel, rising costs due to substantial increases in payroll, a four-fold spike in shipping costs (in a one year period) and the weakened U.S. dollar have made domestic manufacturing economically viable for companies like Master Lock.

Bob Rice, senior vice president for Master Lock said that “We do what’s right for this company,” adding that production will be shifted “when it makes sense, where it makes sense.” Right now in spite of the disastrous effects of Obamanomics, the smart move is to return home to Milwaukee. Even as Master Lock was moving production to China, they were careful not to diminish their ability to manufacture their products domestically.

“If you divested in capital equipment and put all your eggs in the China basket, it means you could get caught in the China bubble,” said Rice, who visits China four times a year. “If you get caught in the China bubble, you have to chase production to the next low-cost player.”

Often that means Thailand or Vietnam, which are fine for shoes and textiles. But Rice and others say those nations lack China’s first-world infrastructure, supplier networks and its ranks of university-trained managers and engineers.

At the present time, Master Lock can manufacture locks from raw material to finished product at its Milwaukee flagship operation at competitive prices. The company is even exporting American made locks to Europe and Asia. Currently there are no plans to pull out of China, but if the trend continues more production could be returned stateside.

General Electric is gearing up to start manufacturing water heaters at its Louisville, Kentucky plant later this year as increased costs in China have caused them to rethink their strategy as well. Kyle Aguilar, chief executive of Wham-O Inc., said his company plans to expand domestic capacity explaining that “The main reason is cost of production.” Aguilar also said “We are making progress toward our goal of producing half of all Frisbee discs in the United States.”

The cheap labor market in China has reached the tipping point, unrest among migrant workers has led to numerous strikes and according to David J. Hoffman, director of the InterChina Consulting group in Washington, companies are discovering that “they now have to pay them higher wages or they go someplace else.”

Salaries for managers and engineers soar ever faster. China is spawning a massive urban middle class that wants cars, their own apartments and the wages to pay for them.

The interior, meanwhile, remains impoverished and poses a different threat to Beijing’s “harmonious society initiatives.” Subsistence farmers rage at their gaping economic disparity with the urban classes, testing Beijing’s capacity to exert social control.

“Social unrest will continue and, if unchecked, could become a significant risk” within five years, InterChina concluded in its latest analysis.

It is just a trickle right now, but as China grapples with its “revolution of rising expectations,” the hard pressed U.S. manufacturing sector could see some real gains. No doubt Mr. Obama will claim victory for each job driven back home by conditions in China.

January 3, 2010

paboehmke@yahoo.com