The Sunshine Report

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.