After years of moving big parts of America's manufacturing
base overseas, does it make sense to expect that much of it can
return? While it won't be immediate, the answer in the long
haul appears to be "yes."
"Bringing things back to North America is realistic," Eli
Lustgarten, a veteran Wall Streeter and observer of U.S.
industry who currently is senior research securities analyst
for industrial machinery and equipment at Cleveland-based
Longbow Research LLC.
Lustgarten noted that interest in reshoring got its start in
2008, when the global economic boom resulted in shortages of
containers, upward spiraling freight rates and "massive
bottlenecks in the ports." While the subsequent downturn
removed many of those bottlenecks, the global economic crisis
nonetheless underscored the difficulties in maintaining an
"extended supply chain," forcing some companies to re-evaluate
their procurement structure. "We think there's a lot of work
going on looking at supply chain sources," he said.
Additionally, some plants located in fast-growing developing
economies that supply both their own markets and North America
are being pressed to devote a larger share of their capacity to
local customers, which could encourage boosting output in the
Lustgarten acknowledged that with plant operating rates
hovering around 70 percent, today's slack capacity utilization
rate "doesn't cry out for any immediate action" for big
domestic industrial corporations to reshore. But he believes it
will become "a more important topic over the years."
Another believer is William E. Gaskin, president of the
Cleveland-based Precision Metalforming Association, who thinks
the signs are pointing in the right direction for PMA members.
"I am moderately optimistic there will be more opportunities
for manufacturers in the United States, both through exporting
and from companies realizing that they need to produce at least
in the region where they are selling," he said.
While PMA isn't seeing "a flood of reshoring" currently,
Gaskin noted that there is an increasing number of anecdotal
reports from PMA members, who produce metal stampings and the
tooling to make them. The crucial point in many cases is often
where the final product is put together, since more often than
not it doesn't make sense to make a part and then ship it to
China. "It boils down to where it's assembled," he said about
the final product. "If the decision is to make it here, you
need to make the parts here." While small, "shippable" consumer
items might be suited for Chinese production, complex products
with a high tooling factor are good candidates for the United
States, Gaskin said.
Michael P. Collins, a former industrial executive and
management consultant in Portland, Ore., authored the book
Saving American Manufacturing, which makes the
argument that manufacturing is "the foundation of the whole
skyscraper that we call the U.S. economy."
If manufacturing is allowed to decline much further it could
fall below the point where it "no longer supports the rest of
the economy," he said, noting that manufacturing currently
accounts for just 11.5 percent of the U.S. economy compared
with 29 percent in 1950. While substantial progress has already
been achieved in making U.S. industry more competitive, Collins
said it isn't enough. Companies spent the past 25 years
improving their "internal efficiencies" by adopting such
popular buzzword practices as total quality management,
just-in-time inventory policy, lean manufacturing and the ISO
9000 system of international standards, he said. But while
these changes have allowed U.S. manufacturers to "stay in the
game," they'll nevertheless be treading water until they shift
to an "external focus" of building sales by developing new
products and markets both at home and overseas.
"In the end, if you don't have enough sales you're still
losing," Collins said. "If you're doing everything right, when
the top line increases, profitability should too."
No industry wants to see the resurgence of U.S.
manufacturing more than domestic machine tool builders, who in
a good year represent a $6-billion to $7-billion-per-year
industry but have fallen to about $4 billion due to the
Douglas K. Woods, president of the Association for
Manufacturing Technology (AMT), said the earlier departure of
manufacturing from U.S. shores was encouraged by a misguided
economic view held by successive administrations in Washington
for nearly half a century.
Woods, who was elected to lead the McLean, Va.-based
industry trade group last year and before that was president of
Parlec Inc., a Fairport, N.Y.-based supplier of tooling,
workholding and presetting products, said the "neoclassical"
outlook that embraces a notion of "comparative advantage"-with
each nation playing to its economic strength, it "all comes out
in the wash" and everyone's a winner-mistakenly assumes there's
an equilibrium between U.S. exports of advanced technology and
imports of manufactured goods.
But the problem, Woods said, is that emerging economies view
manufacturing as a stepping stone to even greater advances in
high technology, and the developing world isn't about to cede
the rights to high technology to anyone else. "As it turns out,
the manufacturing piece is also the foundation for building the
other pieces," he said.
Woods maintained that neoclassical-inspired government
policies based on the notion of comparative advantage have
allowed China to gobble up global manufacturing market share
while the United States concentrates on high technology. But
this approach isn't working, he said, noting that in 2002 the
United States unexpectedly started running a deficit in high
To correct the lag that AMT sees between Washington's
industrial policies and those in the rest of the world, it has
urged the government to launch a coordinated effort by the
Labor Department, the Defense Department and other cabinet
departments to support manufacturing and innovation.