Made in America: How Companies Are Responding to Customer Demand
November 13, 2015
According to the Department of Commerce, the manufacturing sector lost 2.3 million jobs between December 2007 and February 2010, accounting for more than a quarter of all lost jobs in the United States in that time. During the recession, manufacturing accounted for half of the total drop in gross domestic product (GDP).
Recently, manufacturing has rebounded. Economic and logistical factors helped small and large companies bring manufacturing jobs back to the United States. And in doing so, businesses have experienced the powerful benefit of selling products that are made in America.
The Advantages of “Made in America”
Although marketing may not be the primary motivation for companies to manufacture products in the United States, the fact that Americans love the “Made in America” label is compelling. It offers companies selling power.
According to Consumer Reports, nearly eight in 10 Americans would rather buy an American-made product than an imported one. More than 60 percent of customers are even willing to pay a 10 percent premium for domestic products. A Gallup Poll found that 45 percent of Americans made a special effort to purchase products made in the country.
In the Gallup Poll, the leading reason for buying American products was to support the country and for patriotic motives (32 percent). Keeping and creating jobs in the country (31 percent) was second, followed by motivations of it being good for the U.S. economy (20 percent). Thirteen percent purchase American-made products for superior quality.
“Patriotism and the pursuit of positive corporate images as standing behind the U.S. economy” are a part of what’s driving companies to bring manufacturing to America, MarketWatch reports. By producing domestically, companies gain customer support.
Another benefit for companies returning production to the United States is reduced costs. “U.S. factories increasingly have access to cheap energy thanks to oil and gas from the shale boom,” Time magazine explains. “For companies outside the U.S., it’s the opposite: high global oil prices translate into costlier fuel for ships and planes — which means some labor savings from low-cost plants in China evaporate when the goods are shipped thousands of miles.”
Shipping costs are on the rise. If this trend continues while energy prices are low, 20 to 25 percent of products sent offshore will eventually return to the United States, an NPR story says. And by being closer to the customer, the supply chain is shorter. Companies are able to react to trends, ship faster and avoid import duties. Plus, companies can better avoid committing to outsized orders.
Other factors are at play. Time magazine says that “workers from China to India are demanding and getting bigger paychecks, while U.S. companies have won massive concessions from unions over the past decade.” As a result, some believe that offshoring is ending. “Meanwhile, such variables as environmental issues, product-quality scandals, and incidents like the 2013 Bangladesh garment-factory collapse or this year’s [in 2015] West Coast port slowdown have made domestic production more appealing,” according to MarketWatch. “Government incentives and a relatively skilled U.S. workforce are also among top factors.”
The Return of Manufacturing in America
The Department of Commerce states that the manufacturing sector’s output and employment in 2014 grew steadily for the first time in more than 10 years. Manufacturing grew by 38 percent since the end of the recession and has accounted for 19 percent of the rise in real GDP.
The sector added 646,000 jobs through May 2014, with manufacturers actively recruiting to fill 243,000 additional positions. More than half of new jobs were added in five states: Michigan, Texas, Indiana, Ohio and Wisconsin.
MarketWatch notes that in 2014 alone, 60,000 manufacturing jobs were added in the United States, compared to 12,000 in 2003. As many as 50,000 jobs were offshored in 2014, down from 150,000 in 2003. The net increase of 10,000 jobs in 2014 is the first net gain in at least 20 years, according to Harry Moser, founder and president of the Reshoring Initiative. “The trend in manufacturing to the U.S. is to source domestically,” he said. “With 3 [million] to 4 million manufacturing jobs still offshore, we see huge potential for even more growth.”
Several large and small companies have led the effort to return manufacturing jobs to the United States. Figures from the Reshoring Initiative show that seven companies have reshored more than 1,000 jobs each as of March 2014: Walmart, GM, Flextronics (Apple), Caterpillar, Ford, GE and Farouk Systems.
Leading all companies is Walmart with 2,514 jobs. In early 2013, Walmart said that it would buy an additional $250 billion in domestically manufactured products over the next 10 years. Estimates from Boston Consulting Group have Walmart creating up to 1 million American jobs, and the company has used its American manufacturing efforts to launch aggressive marketing campaigns.
GE decided to reshore production after years of manufacturing water heaters in China. After doing the math, GE decided that rising wages overseas and climbing transportation costs justified making the product domestically. GE also wanted more control of the product, especially the technology involved in it. Later, GE moved production of high-end refrigerators from Mexico to the United States. The company reports it has invested more than $1 billion in new plants, equipment and technology to revitalize American manufacturing.
How to React to Customer Demands and the Economy
The question of whether to manufacture domestically is not simple. In some cases, it may still be cheaper to make products in a country such as China or India. Yet the pride of supporting the U.S. economy through manufacturing can be compelling for businesses and consumers. Nonetheless, current trends suggest that the movement back to American manufacturing is strong.
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