Jeff Sweeney, EVP and Co-Founder of East West Manufacturing, was featured in the Atlanta Journal-Constitution in the article "Area manufacturer cites costs, quality concerns in China. Delivery lag time also frustrating." on December 23, 2012. Jeff shares his thoughts on manufacturing moving out of China and briefly outlines one of the benefits of working with East West -- manufacturing products where it is more strategically advantageous.
By: Mike Kanell
December 23, 2012
Mats and rugs, churned out by the tens of thousands and stamped with logos of schools and teams, sure sounds like work destined for a factory in China.
Or Vietnam. Or Mexico.
Just somewhere with low wages, cheap rents and lax regulations. After all, everybody knows those are the places you make low-cost, low-tech commodities.
So why has Millennium Mats in Suwanee just shifted production from China to Dalton?
It turns out, if you ask Ian Malpass, company founder and president, the reasons stack up like the UGA-emblazoned rugs out on his factory floor.
"It is just a pain dealing with China, period," Malpass said.
For decades, the calculation had gone this way: Americans were expensive and their rules constricting. In China, workers were cheap and government attitudes were conducive. Sure it was the other side of the globe, but phones and computers made communications easy. And there was always Delta Air Lines.
Now, the variables for some companies are moving in the other direction.
Start with wages. The spectacular boom in China has meant dramatically higher pay. And Chinese currency has appreciated, making everything more costly.
Then there's the product itself and how carefully it's made.
"We couldn't guarantee the ingredients," Malpass said. "You have no control ... over quality."
This fall, one of the Chinese shipments to Millennium was "$175,000 in junk," he said. "Couldn't use it."
Back when outsourcing to China took off, time wasn't a big issue for American companies like Millennium. But after years of getting progressively more efficient --- partly by avoiding carrying lots of costly inventory --- U.S. companies now hate the lag time when trying to respond to consumer demand.
Meanwhile, wages in the United States have been relatively flat, while factories increasingly use technology --- like robots --- to get more production from each worker. That reduces labor costs.
So the bottom line has changed, Malpass said.
"If it's a core product, I want to be making it here," he said.
The talk about making it here picked up recently when Apple Computer said it was moving some manufacturing back from China.
Yet it wasn't long ago that the late Apple CEO, Steve Jobs, reportedly told President Obama that "those jobs aren't coming back."
Then why did Apple change plans? Has the economic landscape shifted since Jobs died?
No way, scoffed economist Alan Tonelson, Research Fellow at U.S. Business and Industry Council, advocates for family-owned and closely-held companies.
Apple's projected expense --- $100 million --- is a sliver of the company's multi-billion-dollar capital budget, he said.
"In economic hard times, there's an appetite for feel-good stories. It feeds the comforting illusion that there is a way out of our national economic morass that doesn't involve tough choices at all," Tonelson said.
"I do think this is a blatant public-relations stunt," he said.
Still, Apple's announcement sparked talk about "insourcing" --- bringing production and jobs back from overseas. The most recent figures from the Bureau of Labor Statistics put manufacturing payrolls in Georgia at 361,400 --- up a modest 19,400 from two years ago. But it's still well below the peak of 557,800 factory workers in the late 1990s.
Skeptics to the contrary, say the return of manufacturing jobs is a trend, said Gretchen Corbin, the state's deputy commissioner for economic development.
Early this year, for example, Illinois-based Caterpillar announced plans to move production of bulldozers and other equipment from Japan to a new plant near Athens. And Chicken of the Sea in 2009 moved a seafood processing facility from American Samoa to Lyons, west of Savannah.
The reasons are varied, Corbin said. "I think it's different for every company."
Some want to be closer to their U.S. customers, she said. Others want to guarantee quality. And some just find the American scene more dependable.
But for other companies, the answer is still in China, especially if it's the target market for the firm. A consumer company like Atlanta-based Coca-Cola, for example, needs to make its products in China if it wants to compete for the taste buds of a rapidly growing middle-class.
Sometimes, it is about the particular skills of Chinese workers. Consider the 400-worker factory owned by Atlanta-based Anisa International outside Tianjin, China, that produces brushes and beauty accessories. The work is not mindless mass production, said Anisa Telwar, company president.
"This is an art, a craft, a hand-made product. It does take a gentle touch," she said.
The high-end brushes are made from the hair of Mongolian mountain goats, ponies or synthetic fibers. Weaving them into a product demands skill --- expertise that has been practiced for decades in the region.
So for Anisa, there isn't much choice about location, she said. China has a pool of people who can do it. The United States does not.
"How amazing it would be to have the factory next door, but that is not the world," Telwar said.
Economists caution that just because China is getting more expensive doesn't mean work will gravitate to the United States.
There is a shift, but the jobs flow more toward Vietnam or India, said Jeff Sweeney, founding partner and executive vice president of Atlanta-based East West Manufacturing, which does manufacturing overseas for American companies.
Moreover, China's muscle in some techniques --- and its well-developed chain of suppliers --- means that production of items like cell phones and laptops is not being moved, Sweeney said. "China will always have a place for certain kinds of manufacturing."
Ultimately the question is not about price or any one factor, Sweeney said. "The question is, 'Where is the best place to make the product?' "
Still, there is a clear trajectory of rising costs in China.
"Wages in China, by some measures, have tripled," said economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.
"China costs more than it did a decade ago, and it will almost certainly cost more a decade from now," he said. "Anyone expecting to be in the business for 20 or 30 years has to think ahead."
The net flow of jobs may not have reversed, he said. "But I would be shocked if the shipping of jobs to China has not slowed."
Meanwhile, U.S. factories are growing ever-more productive, thanks to technology and tighter management.
Yet the more technology pumps up production, the fewer workers are needed. So the advances that make America more attractive may not create as many jobs as expected when companies move back.
Of course, some businesses never left.
For instance, carpet-making continues to be one of Georgia's largest sectors, with the area around Dalton producing more than 60 percent of all the carpet made in the United States.
Even after the pounding they took when the housing bubble burst five years ago, carpet companies in Georgia still account for up to 30,000 people. Carpet is too heavy and too customized to be made far away.
In fact, many kinds of manufacturing companies survive in Georgia --- each with its own formula.
For example, Bigwood Boards in Atlanta makes, sells and ships cutting boards --- mostly to stores around the United States. Many of the boards are made for custom orders --- and the company can't afford to have the work done overseas, said co-owner Gavron Campbell.
"For me to wait for it to come in --- that's not feasible," she said. "All the manufacturing is in Atlanta."
It helps that it's a family business with relatives pitching in at peak times, along with only three other full-time employees.
"With high-tech machinery, it's not so labor-intensive," Campbell said.
East West Manufacturing can help if you have a product design and are looking to produce larger volumes with quality results at a competitive price. Contact us today to see if East West is the best partner to manufacture your product!