Four years ago, La Vergne-based Pro Charging Systems LLC outsourced manufacturing of several key components of its new line of battery chargers to China.
The idea was to take advantage of lower labor costs and other advantages the company was counting on as it made charger parts there that would end up in hunting vehicles and golf carts sold in the United States.
Over the past year, though, Pro Charging has shifted that work and some other assignments back to U.S.-based suppliers.
The La Vergne company illustrates a surprising trend — call it a trickle — in which some manufacturers are bringing jobs back to America from Asia. With U.S. jobless rates stubbornly high, it’s part of a welcome reversal fueled by the Chinese economy starting to lose its cost advantages for many products made abroad but bound for final assembly and sale here.
Pro Charging’s changing strategy has been a plus for Pine Hill Plastics Inc., a small manufacturer in McMinnville, Tenn. Pine Hill makes a battery cover for Pro Charging that used to be made overseas.
Jeff Wolaver, Pine Hill’s president, said his company has signed contracts with two other U.S. companies in recent months to bring their production home from China or other Asian outposts.
That has allowed the plastic injection molding company to add roughly 10 employees this year, Wolaver said.
“Anytime we can increase sales with an existing client, it’s a bonus to us … just further developing a relationship,” he said, referring to Pro Charging and another company. “My employees (also) see that we’re able to compete in the global marketplace, and that gives them a lot of confidence. It boosts morale.”
As labor costs rise in China — along with steep fuel and transportation costs to ship merchandise back home — the idea of making goods in the U.S.A. starts to look better to American companies, a recent study by The Boston Consulting Group found. U.S. suppliers also are closing the gap in relative costs by operating more efficiently here.
“We’re not saying that factories in China will close,” said Mike Zinser, a partner who leads Boston Consulting Group’s manufacturing work in the Americas. “There will still be huge demand for serving the Chinese market and the rest of Asia. But in terms of supplying North America, China will no longer be the default option.”
The once-enormous gap in labor costs between China’s coastal provinces and lower-wage Southern states like Tennessee should shrink even more by 2015 as wages rise in China, according to Boston Consulting’s analysis. Some production shifting away from China could go to Mexico where labor costs will stay extremely cheap, but not as much as some might think, the group’s report adds.
“The tide has turned and will continue to turn at a quicker pace in years to follow,” said Pro Charging Chairman and Chief Executive Timothy J. Knox. “We can never forget we’re a manufacturing culture. That’s our heritage. We’re very good at it.”
In addition to hunting vehicle and golf cart accessories, Knox’s company makes battery chargers for floor scrubbers and some other equipment.
U.S. manufacturing advantages include a better-skilled workforce, ease of security and other logistical advantages “that will make the U.S. a better option for many companies,” wrote Justin Rose, co-author of the Boston Consulting study. It lists transportation goods, including vehicles and auto parts, household appliances, and furniture among seven sectors that could return up to 3 million manufacturing jobs to the U.S.
The analysis, however, acknowledges that some other manufacturing sectors, including footwear and textiles, probably won’t come back to these shores.
China remains key partner
China remains Tennessee’s No. 1 source of imports and the third-biggest export destination for the Volunteer State behind Canada and Mexico.
Last year, $16.4 billion worth of products — including toys, electronics, appliances and machinery —were imported into Tennessee from China, up 24 percent from 2009, according to U.S. Commerce Department data.
Meanwhile, this state’s exports to China grew 38 percent to $1.8 billion last year — and through August of this year they’re running 17 percent above the year-earlier pace.
Nationally, for all of 2011, though, the U.S. has run up a trade deficit of $189.3 billion with China, highlighting what The Economic Policy Institute think tank says has been the loss of 2.8 million U.S. jobs between 2001 and 2010.
Last week, the U.S. Senate passed a bill aimed at curbing cheap imports from China by pressuring that country to revalue its currency. In the House, the bill faces stiff opposition from Republican leaders wary of a trade war that could harm U.S. business interests in China.
Pro Charging’s decision to bring back production of components — including plastic covers for its chargers — was driven in part by patriotism and to help the U.S. economy recover momentum, CEO Knox said.
The shift has taken more than a year, beginning with Pro Charging doing research on potential U.S. suppliers and working with them to ensure that the products were made in a cost-effective way, Knox said. “We were able to remain competitive from a price-point standpoint, while we improved our quality and shortened our delivery time.”
The first production that Pro Charging brought back from China went to SAPA Extruder Inc.’s aluminum extrusion plant in Mountain Top, Pa.
Bill Peterson, the plant’s sales manager, said the work contributes to keeping its workforce busy. Using a punch press as part of the process of creating the aluminum components for Pro Charging helps to reduce costs, Peterson added.
“We’re excited about the business and opportunity to grow with Pro Charging,” he said.
Elsewhere, automotive supplier O-Flex Automotive Inc. of Murfreesboro will soon begin handling putting a black or silver coating on the body of Pro Charging’s battery chargers to guard against aluminum corrosion.
“They have an agressive program for growth, and we like the fact this helps us diversify,” Scott Powell, sales engineer at O-Flex Automotive, said of the new work.
Gap is narrowing
Jeremy A. Leonard, an economic consultant with the Washington-based Manufacturers Alliance for Productivity and Innovation, says U.S. companies that moved production to China only because of low labor costs are finding there’s more to consider than wages.
For instance, rising oil prices have made overseas transportation costs more expensive in recent years, plus shipping times are often a key factor with customers.
“If you’re in a market where speed to market is important, (moving products) by ship … is going to take longer than if you’re producing close to your customer,” Leonard said.
Wages in China, meanwhile, are growing 15 percent to 20 percent a year, according to Boston Consulting’s study. And stagnant wages in the U.S. manufacturing sector have helped narrow the relative cost advantages that China long enjoyed, said John Butler, project manager with the state’s Department of Economic and Community Development.
Political debates over foreign competition come down to one thing most often, though: jobs.
The U.S. jobless rate remains above 9 percent, and Tennessee’s rate was 9.7 percent in late summer.
Last week, one federal program that has paid for job training and other aid for more than 35,000 unemployed Tennesseans (and many more workers in other states) since 2002 was extended for at least two more years.
Congressional Democrats and the Obama administration made renewal of the Trade Adjustment Assistance program a precondition for voting on trade agreements with South Korea, Colombia and Panama. Lawmakers approved the renewal and the three trade pacts last week.
The Trade Adjustment Assistance plan will get $575 million over two years for training, relocation aid, health insurance tax credits, job-search allowances and other benefits to workers who lose jobs as a result of foreign trade.
Tennessee manufacturing employees have been a major beneficiary of the program in recent years.
It provided $20.5 million in benefits to newly unemployed Tennesseans in fiscal 2010 alone. More than 8,400 Tennessee workers from 67 companies received trade adjustment aid for the first time in 2010, the 12th-highest number in the nation. Most states that topped that number were Midwestern states hit by losses in the auto industry or states with larger populations such as California, Texas and New York.
An analysis last year by Middle Tennessee State University economist Steven Livingston found the state generates almost twice the number of requests for trade adjustment aid than one would expect based on the number of manufacturing businesses.
Livingston attributed that to two factors. First, many of Tennessee’s manufacturing plants are branches owned by out-of-state companies, and Tennessee plants are more likely to be located in rural areas. Such sites are often among the first to be closed when the economy plummets.
Dr. Ming Wang, president of the Tennessee Chinese Chamber of Commerce, sees other promising economic factors at work.
Rising wages in China, for instance, will boost demand for U.S. products, Wang said. And Chinese companies seeking new markets will add manufacturing plants here to be closer to domestic consumers they hope to target.
“This year, when the world’s largest manufacturer is on the brink of becoming the world’s largest consumer, that’s a once in a lifetime opportunity for many of our businesses here,” Wang said.
