Archive for April, 2012

“Reshoring” Opportunities Abound at Del Mar Electronics & Design Show

Tuesday, April 24th, 2012

If your company is considering ”reshoring” manufacturing of some parts, assemblies, or products to the U. S., then you should attend the 18th annual Del Mar Electronics & Design Show, which will be held at the Del Mar Fairgrounds (Map) Wednesday May 2nd, 10am – 5pm and Thursday May 3rd 10am – 3pm.  Admission to the show, the seminars, and parking at the show are ALL FREE.

This is the only industrial trade show for manufacturers held annually in the San Diego region so this is the best opportunity for companies to find local and regional suppliers to “reshore” manufacturing to the U. S.

To help your company analyze the true Total Cost of Ownership to determine whether or not you should be returning manufacturing to America, I will be giving a presentation on “Returning Manufacturing to America” at 10 AM on Wednesday May 2nd.    I will be considering:

  • Hidden costs of doing business offshore that comprise a true understanding of the “Total Cost of Ownership”
  • How you can calculate these costs utilizing the Total Cost of Ownership worksheet calculator developed by Harry Moser of the Reshoring Initiative
  • Case stories reviewing some of the problems companies have experienced in outsourcing offshore
  • Reasons why some companies are choosing to “reshore” manufacturing to the U.S.

For the past 15 years, manufacturers have outsourced their manufacturing offshore in Asia, especially in China, to reduce costs to keep or increase market share.  However, the supply chain dynamics are changing, and the cost savings of outsourcing to China are eroding due to higher labor rates and shipping costs.  In the last few years, there have also been many news reports about outsourcing horror stories regarding poison or tainted Chinese products, Chinese counterfeit parts, intellectual property infringement, quality problems, and lawsuits so many companies are rethinking their decision about manufacturing in China.

In August 2011, the Boston Consulting Group’s released their first report “Made in America, Again: Why Manufacturing Will Return to the U.S.,” explaining how rising wages and other forces are steadily eroding China’s once-overwhelming cost advantage as an export platform for North America.  By around 2015, BCG concluded that when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account, it may start to be more economical to manufacture many goods in the U.S.

Now, a new BCG report, “U.S. Manufacturing Nears the Tipping Point, Which Industries, Why, and How Much?” released on March 22, 2012 by Harold L. Sirkin, Michael Zinser, Douglas Hohner, and Justin Rose has identified “seven industry groups that account for $200 billion in goods imported from China for which rising costs in China will likely prompt manufacturing of goods consumed in the U.S. to return to the U.S.”

The report predicts that production of 10 to 30 percent of U.S. imports from China in these industries, which account for approximately 70 percent of goods that the U.S. imports from that nation, could shift to the U.S. before the end of the decade, adding $20 billion to $55 billion in output annually to the domestic economy.”  The tipping-point sectors are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

BCG predicts that improved U.S. competitiveness and rising costs in China will put the U.S. in a strong position to add 2 million to 3 million jobs in a range of industries and an estimated $100 billion in annual output by the end of the decade which would reduce unemployment by 1.5 to 2 percentage points, and lower the nonoil-related merchandise deficit by 25 to 35 percent.

According to a new survey which BCG conducted in late February, “More than a third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it.”

The top factors cited as driving future decisions on production locations:  labor costs (57 percent), product quality (41 percent), ease of doing business (29 percent), and proximity to customers (28 percent).  In addition, 92 percent said they believe that labor costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”

In the new survey, “67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the U.S.”

“Not long ago, many companies regarded China as the low-cost default option for manufacturing,” observed Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “This survey shows that companies are coming to the conclusion surprisingly fast that the U.S. is becoming more competitive when the total costs of manufacturing are accounted for.”  To request a summary of the survey findings, please contact David Fondiller at fondiller.david@bcg.com.

The Del Mar show will also feature a number of other free technical seminars.  A few of the topics are:  “Using LinkedIn as a Business Development Tool,” “New Energy Storage Options for the Transportation Sector,” “Best of SolidWorks Tips and Tricks,” and “Counterfeit Electronic Components Are No Longer a Threat; They are a Reality.”  For the full seminar schedule, go to www.vts.com.  In addition, all attendees are invited to the Post Time Party, Wednesday, May 2nd, from 5 – 7pm, with free refreshments provided thanks to sponsorship by Quality Systems Integrated Systems, Luscombe Engineering, Concisys Electronic Manufacturing Services, and National Test Equipment.

My company will be exhibiting products for the companies we represent at Booths 207 – 209 in the Bing Crosby Hall, which is to the left of the main entrance to the show.   We look forward to seeing you at the show!

 

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Posted in Manufacturing, Outsourcing, Reshoring | No Comments »

Smart Trade Conference Initiates Efforts to Fix California’s Economy

Tuesday, April 17th, 2012

On March 28th the Smart Trade Conference sponsored by the Coalition for a Prosperous America brought together a broad spectrum of local business executives to discuss CPA’s strategic agenda to fix America’s economy by reforming U. S. international economic policies to enhance the global competitiveness of domestic manufacturers and farmers to promote genuine economic recovery and create family-sustaining private sector jobs.

Ian Fletcher, CPA’s Senior Economist, began with the following chart showing that the     U. S. trade deficit from 1960 to 2010 has resulted in a total $5.85 Trillion in U. S. global losses requiring net U. S. foreign borrowing/asset sales of $1.6 Billion per day.

He emphasized that trade deficits are real money, saying that when America receives goods from abroad, we must pay with:  a) goods we produce today, b) goods we produced yesterday, or c) goods we will produce tomorrow.  We are going more and more into debt because we are losing the manufacturing capability to produce goods today that we can use to pay for goods we receive from abroad.  America has already lost the following industries:  Fabless chips, Compact fluorescent lighting, LCDs for monitors, TVs, and handheld devices like mobile phones, electrophoretic displays, Lithium, ion, lithium polymer and NiMH batteries, Advanced rechargeable batteries for hybrid vehicles, Crystalline and polycrystalline silicon solar cells, Inverters and power semiconductors for solar panels, Desktop, notebook and netbook PCs, Low-end servers, Hard-disk drives, Consumer Networking gear such as routers, access points, and home set-top boxes, Advanced Composites used in sporting goods and other consumer gear, Advanced ceramics and Integrated circuit packaging.

Mr. Fletcher said that from the early 1800s until after WW II, the Untied Stated was a protectionist nation in order to protect and grow its domestic manufacturing industry, as initially recommended by our first Secretary of Treasury, Alexander Hamilton.  As a free-market capitalist country, the United States is competing against the state-controlled capitalism of China and Japan.  He concluded by pointing out that it’s not just cheap labor that is the problem.  The U.S. is actually now a laggard in manufacturing wages among developed nations.   Germany has much higher wages than the U. S. and doesn’t have a trade deficit problem with China as we do.

Next, CPA’s President Michael Stumo went into more detail on the trade deficit problem stating that our trade deficit set records in the last decade.  Net imports hollow the U.S. economy and slow growth.   He explained that GDP is the sum of “consumption,” “investment,” “government spending,” and “net exports.”  Thus, our net imports subtract from our GDP.

The trade deficit equals lost jobs– ten thousand jobs are lost for every one billion in trade deficits.   In February 2011, the real unemployment, that is, the U-6 measure, which also includes marginally attached workers and involuntary part-time workers, totaled 24.7 million Americans.

The trade deficit equals low quality jobs because we have trade deficits in virtually all industrial sectors, from low tech to high tech to green tech.   Agriculture has also ceded domestic market share to imports.  We are creating low wage, low benefit jobs. Our loss of manufacturing means that workers move from manufacturing to service jobs for an average 40% pay cut.

Mr. Stumo said that the primary problem is our failure to recognize and neutralize foreign state capitalism. The Chinese government owns over 50% of its economy, using currency manipulation, value added taxes, strategic subsidies, indigenous innovation, and other means to maintain trade imbalances.  Japan, Germany, South Korea and others have versions of state-managed capitalism to maintain net exports.  Tariffs are a very small part of the issue.  The “Washington Consensus” version of free trade focuses upon lower tariffs.  But, lower tariffs do not address the many ways state-managed capitalism causes our trade deficit.  State-managed capitalism is the 21st Century problem.  The U.S. has failed to even articulate this problem, even as we lose jobs, wealth and innovation.  We need a national trade and economic strategy designed to produce more of what we consume, balance trade, and neutralize state capitalism.

Then, he explained that border adjustable taxes (BAT) are a hidden foreign export subsidy whenever exporters receive a government tax rebate upon export.   BATs are hidden tariffs because the U.S. goods pay the tax when entering the foreign country.  A Value Added Tax (VAT) is a tax on consumption – as opposed to income, wealth, property or wages.  It is s a tax only on the “value added” to a product, material or service, from an accounting view, at every stage of its manufacture or distribution.  Over 150 countries have a VAT but the U.S. does not.  VATs are “border adjustable” and average about 17%.  He said this means that virtually all foreign countries tax our exports with their VATs, when our goods cross into their country.  While those countries tax their domestic production as well, they rebate their 17% VAT when their companies export.

Mr. Stumo said that VATs are the biggest trade problem for the U.S. globally. They are an essentially a tariff on U.S. exports, and foreign VAT rebates are also a subsidy facilitating foreign exports to us.  Trade agreements do not address VATs when tariffs are lowered.  The World Trade Organization allows VATs.  During the last 40 years, the U.S. has lowered tariffs and other countries lowered tariffs.  However, other countries implemented and raised their VATs. The net result is that other countries replaced tariffs with VATs but the U.S. did not.  No trade barrier costs us more money.  No other foreign trade tactic costs the U.S. economy more.  Our exports are double taxed – once in the U.S. and once upon arrival at a foreign country’s shores.  Foreign sales to us are partially tax free.  Foreign countries rebate the VAT upon export, and the U.S. does not apply the tax at our border.

Mr. Stumo concluded his remarks with a brief discussion of the currency manipulation problem.  Foreign currency manipulation is trade cheating because it is both a tariff and a subsidy.  The U.S. economy cannot produce jobs and wealth without addressing this problem.  China’s state managed economy, poses the biggest problem to the U.S., making up 1/3 of our trade deficit.  China’s currency is at least 35% undervalued.  Our exports cost 35% more than they should to the Chinese.  Their sales to us are 35% less than free market value.  China, South Korea, Japan, Taiwan and Singapore have manipulated their currency values.  Our government has not protected U.S. economic and national security interests by neutralizing this practice.

He said that the U. S. has the discretion, under WTO rules, to apply its trade laws to offset the injurious effect of any subsidy, but the U. S. Trade Representative has refused to include trade agreement provisions that neutralize currency manipulation or other massive non-tariff barriers.  Reciprocal tariff cuts matter very little when state-managed economies have many other modern tools to game the system, including currency cheating, border taxes, free credit, indigenous innovation requirements, and other tactics to hobble U. S. producers.  The persistent failure of high level diplomatic efforts to solve this problem underscores the futility of negotiating without leverage.  CPA is urging Congress to act to address this problem.

Mr. Dave Frengel, Director of Government Affairs at Penn United Technologies, Inc. was the last speaker.  He told the story of how CPA was founded in 2007.  At that time a group of domestic manufacturing members of the National Association of Manufacturers successfully pushed for a controversial vote on NAM’s International Economic Policy Committee endorsing congressional legislation that would hold China and other nations accountable for currency manipulation.  The vote was eventually overturned by NAM’s Executive Committee and Board of Directors because the Executive Committee and Board of Directors is dominated by the large multinational corporations, many of which have manufacturing operations in China and other foreign countries.  The overturn of the vote led to a confrontation between a group of NAM’s domestic manufacturing members that supported the vote and NAM’s president.  Some of these companies subsequently left NAM.  He said that when some agricultural and labor leaders heard about his group of domestic manufacturers who were battling the multinationals in the NAM, they invited his group to join them for a “Globalization” conference in Colorado Springs to see if there was common ground for all of them to work together on trade reform.  It turned out that there was a huge amount of high middle ground.  As a result, his company was part of the group that founded CPA to address currency manipulation and other trade issues hurting American manufacturers.  If you would like to receive CPA’s Trade reform blog, you may sign up at www.prosperousamerica.org

During the Q & A session, Senator Mark Wyland’s field rep, Donna Cleary, suggested that CPA schedule a follow-up summit to address other problems to fix California’s economy.  The response was positive, and several people volunteered to help plan the summit.  All of the San Diego County Supervisors, California legislators, and Congressional representatives had been invited to attend or send a representative, but only Donna Cleary showed up.  In subsequent conference calls, a tentative date of October 10, 2012 has been set.  Persons interested in sponsoring and planning this summit, may contact CPA’s State Chair, Michele Nash-Hoff at michele@savingusmanufacturing.com or Sara Haimowitz, Program Development Director, at sara@prosperousamerica.org

 

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