The Truth Behind “Made in the USA”
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Much talk across the American political and economic landscape centers around the importance of domestic manufacturing. Yet the issue and challenges of "Made in the USA" are so poorly understood that fatalistic hand-wringing and stump speech vitriol are obfuscating its rapidly emerging potential for near-term revitalization.
Revitalization implies that there has been a reduction in domestic manufacturing, which many Americans assume has happened over the past 20 years. The truth is, more products are manufactured in the United States than ever before.
A False Link
This common mistake is based on linking manufacturing to manufacturing jobs. While plenty of low-skilled manufacturing has moved overseas, the larger culprit in the loss of U.S. manufacturing jobs is technology. Automation is at least as responsible as outsourcing for reduced manufacturing employment. But it is also driving the viability of renewed domestic production of many current imports.
To hear politicians tell it, with national unemployment hovering near eight percent, returning offshore production to the United States means jobs aplenty. But the business executives responsible for meeting those payrolls know that job growth as a result of increased domestic manufacturing is merely a byproduct—not the objective—of sustaining a profitable business model. To achieve this goal, we must offer customers better value than a competitive import. Shifts in the macroeconomic tides are making it easier to clear that hurdle.
Counting the Costs
American companies began importing for one reason: to reduce costs. While labor rates certainly played a role in the pricing differential, other culprits included lower capital and infrastructure costs, fewer regulatory hurdles, lax environmental standards, subsidized raw materials, and currency manipulation.
Achieving these lower costs came with a price. Core drawbacks ranged from the quantitative (lead times, prepayments, quantity ordering) to the qualitative (quality control, brand and intellectual property piracy) to the societal (child labor, working conditions, environmental issues). The cost advantages were so significant, however, that many companies readily accepted these sacrifices.
But times are changing. Labor costs, particularly in China, are steadily increasing. Commodity pricing is more consistent globally. Transglobal freight costs are rising.
Simultaneously, U.S. economic distress has yielded a more positive environment for forward-thinking companies with manufacturing aspirations. Low interest rates foster developing new facilities or upgrading older factories. Two decades of lean manufacturing experience, combined with advances in automation, enable companies to produce more with less.
Customers are tightening their belts, putting a premium on reducing inventory, lead time, head count, and innovation cycle time—while they demand more options and greater customization. A service-oriented domestic manufacturer of quality products has never looked more attractive.
The time is right to bring offshored production back to the United States. Our nation has a surplus of four prime natural resources: vision, creativity, investment, and effort. Entrepreneurs—and entrepreneurial companies—can domestically manufacture quality products, bring them to market as the low-cost producers, and yield a sustainable, profitable business model. And who knows? Perhaps jobs will follow.