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Saving American Manufacturing

The cover story in the June 30 edition of Business Week asks a question on every manufacturer’s mind: “Can the U.S. Bring Jobs Back from China?” Oil prices are driving up transportation costs, wages in China are increasing 10-15% a year, and the American dollar is falling against world currencies. This could be a good time for the American manufacturing industry to make a comeback. But, as the article points out, it won’t be easy.

Most of us are familiar with this scenario: A company wants to cut costs. It explores ways to source its parts for less. Its American supplier can’t compete with China’s low costs, so a Chinese supplier wins the contract. Two years later, the cost savings aren’t nearly what were expected, and the company turns back to its American supplier. But that manufacturing sector has shrunk due to closings, and available capacity is hard to find.

For the optimistic, this could be an opportune time for metalcasters, as well as other manufacturers, to invest in increasing their capacity as more OEMs are looking to source domestically. However, after several years of watching job after job head offshore, it’s understandable that suppliers are a little gun-shy.
In the article, iron metalcasting facility Donsco is offered as an example of the impact offshoring has had on the American manufacturing industry:

Despite growing demand, [Donsco Chairman Art] Mann says Donsco will be "real cautious" about spending the $30 million and two years needed to build a new foundry. The impact of this reluctance is being felt in Belen, N.M., where CEMCO, a maker of rock-crushing and farming equipment, is looking to cut costs and logistical headaches. The company today imports many metal parts from Asia but would prefer to buy domestically because of rising shipping rates and the weak dollar. "American foundries now can compete head-to-head on cost, but there aren't many foundries, welders, machinists, and quality-control engineers," says James B. Turk, CEMCO's chief financial officer. "What we had 10 years ago is gone." Where did all the capacity go? Mainly to China, where modern foundries are proliferating.

Suppliers are in the tough situation of turning away customers that two years ago they would have loved to have. So what now? As the article points out, China’s wages and transportation costs may be increasing, but so are productivity, research and development. And large corporations that have already invested chunks of money in establishing a supply base in Chinese cities will be slow to abandon them.

The good news is that OEMs may be having second thoughts about sourcing their newest product lines to foreign locations. Inflation and increased commodity prices have helped even out the price balance between Chinese and American metalcasters. And the “survival of the fittest” theory seems to have held true for the metalcasting industry. Perhaps the American manufacturing industry is primed for a revival.