At Home & Abroad
Where you get your product matters. Margins, product quality and shipping speed all depend on where a product is made. Any changes to the rules and trends of manufacturing locations, then, could have an impact on your business.
The question is: Are the rules and trends currently changing? Is the U.S. finally hitting its much-promised manufacturing resurgence, and if so, in what product sectors? Are foreign manufacturing powerhouses like China and India maintaining their strength? And what's going on politically? Should I expect America's support of domestic manufacturing to continue, or are rougher waters ahead?
All good questions, and ones you should know the answers to.
THE STATE OF U.S. MANUFACTURING
According to the Institute for Supply Management, a not-for-profit educational organization that reports monthly on the state of American manufacturing, U.S. manufacturing has been expanding for about a year. Its May 1, 2014 report cited an average of 4.4 percent growth every month since May 2013. The report also had a "New Orders Index," which showed growth for the last 11 months, at an average rate of 4 percent. Relevant industries experiencing growth in new orders cited in the report included: apparel, leather & allied products; miscellaneous manufacturing; textile mills; computer & electronic products; plastics & rubber products; and paper products.
Employment was also up for the 10th straight month, with the report citing "printing & related support activities; apparel, leather & allied products; paper products; miscellaneous manufacturing; and computer & electronic products" as specific industries reporting an increase in hiring for April 2014. Plastics & rubber products, however, reported a decrease. The long-term growth in these areas would suggest that, at least for the printing and promotional industries, the U.S. is finally starting to hit its long-promised manufacturing stride. Other sources further corroborate the apparent resurgence of American manufacturing, while also laying out some of the issues currently facing overseas manufacturing.
THE STATE OF OVERSEAS MANUFACTURING
Most foreign economies, including economic superpowers like China and Brazil, are not enjoying manufacturing growth similar to the United States. In fact, their manufacturing appears to be contracting.
According to research from the Boston Consulting Group (BCG), a global consulting firm specializing in business strategy, the difference between the United States' and China's manufacturing costs has narrowed to less than 5 percent. BCG cited wage increases in China, unfavorable currency swings and rising energy costs as reasons for the narrowing difference.
Further, BCG claimed that American manufacturing is excelling compared to other countries. Said the organization:
The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50 percent fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005. Mexico now has lower average manufacturing costs than China. Overall costs in the U.S., meanwhile, are 10 to 25 percent lower than those of the world's 10 leading goods-exporting nations other than China.
China is not the only foreign manufacturer whose cost competitiveness is shrinking. BCG stated that two of China's three peers in the famous "BRIC" grouping (an acronym for the rising-star economies of Brazil, Russia, India and China), Brazil and Russia, also are weakening. The reasons given for their decline are similar to what China is facing: wage increases, higher energy costs, and low productivity growth. In fact, BCG cited Brazil as now one of the most expensive countries to manufacture in worldwide.
India, however, seems to be remaining strong. BCG stated that India's productivity and declining currency value was enough to offset increased costs due to wage increases. As for other manufacturing countries on the rise, BCG didn't have many to point to in its press release, "Study Reveals Striking Shifts in Global Manufacturing Costs over the Past Decade." Aside from the aforementioned success of Mexico, Indonesia was the only other real stand-out country, which the group said is performing well for reasons similar to India's.
LINGERING ISSUES
With growth at home and contraction overseas, does this mean everything is going perfectly for U.S. manufacturers? Not exactly.
While U.S. manufacturing is doing well, there are still some issues impeding its growth. Raw material costs and tax rates are meaningful challenges American manufacturers are currently facing. "The biggest issue in U.S. manufacturing is cost of producing goods," Janine Cannici, marketing communications manager for VisionUSA, Rahway, N.J., said. "Raw materials and production costs are continually on the rise, and it is a challenge for any U.S. supplier to adapt and keep [the] price of goods competitive and marketable."
Gary Schlatter, CEO of Leashables by OraLabs Inc., Parker, Colo., cited taxes as a big issue facing American manufacturers. "I think that in the next five years we will see more growth, as long as our tax rates can be contained," he said. "All taxes impact us from an overall cost basis, but the biggest and most impactful are corporate and the health care costs." America's corporate tax is one of the highest in the world, capping out at 35 percent at the federal level (and corporations must pay a state tax as well). However, a 2013 article on CNN.com, "GAO: U.S. corporations pay average effective tax rate of 12.6%," claimed the average corporate tax paid is much lower. The article suggested this lower rate is due to various tax credits, companies banking overseas, and companies filtering money through subsidiaries to obtain lower rates. The article, however, referenced mostly large, multinational corporations such as Apple, so the 12.6 percent rate may not be accurate for the print and promotional industries.
As for health care, the Washington Post reported in February that more than 65 percent of small businesses will see their health care costs go up under the Affordable Care Act. Additionally, a key provision of the law expected to lower costs, the "employer choice" feature that would allow employers to give their employees a choice of plans on a state's health care marketplace, has been delayed until November 2014.
Despite these issues, Cannici and Schlatter remained optimistic about the future of U.S. manufacturing. "In our case, personal care products, I think that U.S. manufacturers have plenty of opportunities in today's market for both domestic and export sales," said Schlatter. "For domestic sales, U.S. consumers want American-made products, and in many cases are skeptical of foreign made, depending on the country of origin."
Cannici seconded the positivity: "I think manufacturing in America will rise due to the demand for safer products, increased patriotism, concerns about environmental footprints and the increased labor and fuel costs to import."