At first I couldn’t believe my ears: a U.S. manufacturer was telling me that they were planning on fleeing the high costs of Chinese manufacturing for the relatively lower costs of the U.S.
It’s been years since I heard anyone credibly claim that they could save money by moving manufacturing to the U.S., but just last week I met with a manufacturing CEO who was certain 2012 would be the year they outsourced to the U.S.
I was surprised with the textbook microeconomic explanation of why this manufacturer was leaving China for the U.S.
Long and inflexible supply lines are causing the company, which manufactures replacement industrial refrigerator parts, to finance and store large amounts of goods. High-energy prices are causing trans-Pacific transportation costs to skyrocket. And, the not so hidden expense and personal sacrifice needed to manage a large staff 8,000 miles away have worn down the CEO.
Management now believes Chinese manufacturing isn’t a financial elixir and is hurting their ability to service customers. The deal was sealed when Chinese inflation eroded whatever remaining financial benefit remained and civil unrest terrified visiting employees.
Instead of continuing down the Chinese rabbit hole, the CEO is working on a plan to transport his machine tools to a newly purchased manufacturing plant in South Florida. With a modest capital investment, he believes that 10 U.S. workers will be able to manufacturer as much as 50 Chinese workers.
Even better, by manufacturing in the U.S. the company will improve customer service and the personal wear and tear not of trying to control quality in a manufacturing operation located in the middle of China will simply disappear.
The CEO is highly motivated and very smart. His company is growing more than 50% per year and is very profitable. The company generates high margins by packaging the delivery and installation of a basic industrial consumable with superior customer service and customized installation.
In the big scheme of things, one company moving their manufacturing to the U.S. doesn’t mean much, but after listening to this CEO, and talking to scores of others, it’s clear that the Chinese advantage is being eroded by high domestic inflation, rising energy prices and an increasingly unstable civil environment. Given the choice of having to commute to China or stay in the U.S., the U.S. wins every time.