A Boston Consulting Group analysis released last week found that manufacturing outsourced to China has begun to return to the United States as the economic advantages have started to shift. The analysis predicts that, with Chinese wages rising at 15 to 20 percent a year and with the continued appreciation of the renminbi against the dollar, the gap between the labor costs in Chinese coastal provinces and in America’s lower-cost states will shrink to less than 40 percent by around 2015 — and could lead to the creation of two million to three million jobs in the United States.
Mr. Fichter recently discussed the factors that led him to bring some of his manufacturing back to this country. A condensed version of the conversation follows.
Q. Why did you decide to open your new factory in the United States?
A. The lead time for orders coming from China is three weeks, and all of our brewery clients want our products faster — that’s the first thing they say when we meet with them.
Q. Were there other factors?
A. Once we started looking into it, we found the decision made business sense on many levels. Our Chinese labor costs have increased 300 percent since 2006, when we opened our factory there. Even at the higher wages Chinese workers are demanding, it’s gotten harder to find labor. To stay competitive we’ve also had to upgrade benefits like dormitories and food. On top of that, the Chinese currency continues to appreciate — it was valued at 8.28 to the dollar when I started the business. Now it’s at 6.38. And I predict shipping costs will keep going up as a result of the rising cost of oil.
Q. Do you see other manufacturers making the same decision?
A. While I don’t personally know any, I think we’re on the leading edge of a trend because the factors that are affecting us affect everyone.
Q. Why isn’t it happening faster?
A. Change will take time. Five years ago, there was an absolute advantage to manufacturing in China. Today, some things are better produced here, and some are better produced there. It’s 50-50. But I think the U.S. advantage will become clearer with time.
Q. Many owners complain about the quality of Chinese goods. Has that been a problem for you?
A. No, we opened our own factory in China in 2006. Quality there is good and has never been an issue. But we have had other challenges.
Q. Like what?
A. I like to do business by the rules, but as an American operating in China, the rules are not always entirely clear. For example, we lost power — and three days of productivity — at our Chinese factory in August. Maybe there was something we could have done to get our power turned back on. Meanwhile, our customers were screaming.
Q. How did you get into this business?
A. After business school, I worked in manufacturing as a consultant. I figured that if I could tell other companies what to do, I could run my own. So, I began to research businesses I could start with a very small investment. I came across a company that made tap handles for home brewers. They were failing, and I saw why: high labor costs. I decided I could do it better and started Taphandles out of my one-bedroom apartment with an $800 investment in tools and material from Home Depot. I started painting tap handles on my balcony.
Q. How did you end up manufacturing in China?
A. In preparation for a job interview with Breadman, the bread machine company, I’d done a ton of research on their Chinese manufacturing. I decided to use the Breadman model for my business, which would eliminate the high labor costs that contributed to the failure of that other tap handle business.
Q. Which products will Taphandles manufacture at its American factory?
A. While 98 percent of the tap handles will continue to come from China, we also make signs and displays — including the A-frame chalkboards you see outside bars. We want to grow this area of the business and had initially planned to do it in China. Instead, we’ll be making these products, which are big, bulky and expensive to ship, in Woodinville.
Q. How will your costs compare to what you would have paid in China?
A. We’ll break even on production, but come out ahead once we factor in lead time. Right now, we’re losing orders because of lead time.
Q. What type of work force will you need?
Article source: http://feeds.nytimes.com/click.phdo?i=ad8219c5299450ae76285f0a06620e6b
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