I interviewed Rosemary Coates who discussed the movement to bring manufacturing to the US. Rosemary is the author of a top-selling book on Amazon called 42 Rules for Sourcing and Manufacturing in China.
Dustin: Thank you, Rosemary, for spending your time to discuss the movement to bring manufacturing back to the U.S. Can you start by providing a brief background of yourself?
Rosemary: Sure. I’m the president of Blue Silk Consulting, and it’s a small boutique firm. Mostly, we help clients design their global supply chains with a lot of emphasis on manufacturing in China. I’m also the author of a top-selling book on Amazon called 42 Rules for Sourcing and Manufacturing in China. For the past five or six years or so, I’ve been helping my clients do a lot of global expansion in their manufacturing operations throughout China and seeing how they can take advantage of both the marketplace there, as well as manufacturing items for export to the rest of the world. That’s what I do in terms of my consulting work, but in the last year or so, there’s been quite a movement in the U.S. to evaluate when and if some manufacturing can be brought back to the U.S. As I’m sure you know, America has experienced a pretty deep recession over the last few years, and a lot of that, hopefully the repair to the economy will benefit from having some manufacturing brought back. I have a new initiative, my company has a new initiative to help companies in the U.S. evaluate whether they can bring at least part of their manufacturing back.
Dustin: And can you talk about who do you think needs to move manufacturing back?
Rosemary: I think, a lot of it is still very anecdotal, and when you look at the numbers, there’s still a three hundred-million-dollar trade deficit with China, so we’re still importing, in the U.S. we’re importing way more than we’re exporting, but I think it’s time for a lot of companies to take sort of a step up with a more strategic view so they understand how to manufacture in China and to take advantage of selling into the burgeoning China market but also how they manufacture in local economies, whether it’s Europe or the Middle East or South America or North America to address the specific needs of the markets in those areas. I think most companies are going to start evaluating a more global sense rather than just manufacturing in one country or another, to really think about their manufacturing footprint, where’s the most appropriate place to manufacture, and how they take advantage of being close to their customers around the world.
Dustin: Is there anything you could say about how this would be done?
Rosemary: Yes. Our approach is to do a front-end analysis, and we work with our clients to evaluate the potential possibilities of product lines, whether or not there are enough suppliers in the local areas, whether the customer base will sustain manufacturing in a local area. There’s a whole analysis; we have a ten-point diagnostic that we do to determine whether or not it’s feasible. To that we add the government regulations and some of the new incentives that the Obama Administration has recently rolled out together with some of the things that are happening in the individual states in the U.S. to provide tax incentives and so forth.
The problem is that a lot of the manufacturing technologies have already moved offshore, so even though a company may want to manufacture their product here, the supportive technologies may be gone and the supportive skill-set. It’s not as easy as saying, “Well, we’re gonna bring a manufacturing line back.” You may have to evaluate whether or not you've got suppliers locally, whether you've got the skill-set with your workers, whether or not there is reason to have, to produce high-end goods here, that sort of thing. An awful lot of companies are doing it, though. Apple’s a good example. They've already announced that they’re bringing a manufacturing line back to the San Francisco Bay Area, one of their lines that will represent a small piece of their business, but it’s one step. Starbucks has brought back the manufacturer of their ceramic cups to the U.S., reopened a plant in Ohio. General Electric has brought back several production lines for white good or appliances to, I believe, a place in Kentucky. There are a lot of examples like that where companies are starting to rethink their strategies and determine if they can, in fact, bring things back to the U.S. Obviously, this is gonna have an effect on China as well. I don’t think there’s any desire to put Chinese out of work or to cause a recessionary environment in China. Really, it’s not a zero-sum game; it’s really about thinking about a new strategy, moving forward, taking advantage of world markets and the potential for manufacturing in all different regions.
Dustin: What type of products are more suitable to bring back to the U.S.?
Rosemary: That’s a very good question. It depends, I think, on where the markets are. If a product, for example, requires a lot of labor, it’s a very labor-intensive assembly product, then it probably is best to stay in a low-cost-labor country, whether it’s China or Vietnam or Indonesia or Malaysia. If it’s a product that requires more advanced skills and engineering, then, potentially, that’s a good product to bring back. We also help our clients consider new technologies like 3-D printing. As you may know, 3-D printing is layering of products that are sort of built layer by layer, and it’s a new technology that is gaining a lot of interest and popularity. There may be products—plastics, for example—that could be 3-D printed, requiring additional technology and support that could be done in the U.S. So, what kind of products? I think it depends on what kind of products you’re making and a whole bunch of different variables that might go into the decision process.
Dustin: And where in the U.S. have you seen manufacturing moving to?
Rosemary: Interestingly enough, Apple’s bringing it back right here to Silicon Valley. I live in Silicon Valley. I’ve seen over the last twenty years, almost all the manufacturing has moved away because it’s very expensive to manufacture here. So many high-tech products are designed here, new software is created, and so forth. There’s very little manufacturing that’s local. However, Apple has committed to start a factory again here locally in Silicon Valley, so I think it’s just a matter of time. Each place in the U.S. has different cost structures and different advantages for manufacturing. In the South, in the Deep South, for example, the labor costs are less, so there a lot of factories that are locating there.
For call centers and other sort of information processing, a lot of those are located in the Northern part of the U.S., in the Dakotas and some other areas where labor cost is relatively inexpensive and there are a lot of people available. It could be anywhere. We also know that a lot of the governments of each of the individual states are starting to put incentives out there to bring companies back because it, of course, represents more employment. There may be tax holidays or some kind of tax incentive or free land, something that’s going to assist with the economics. I think the biggest problem that I see in the U.S. is that our infrastructure is not in very good shape.
When I go to China, I’m always amazed at the infrastructure, the highways, the railheads, the deepwater ports, the logistics warehousing, the infrastructure’s just spectacular, really spectacular. And modern, obviously, ’cause it’s all been built in the last twenty-five years or so. In the U.S. our infrastructure—our electric grids, our highways and bridges and so forth—are not in very good shape. There has to be a concurrent investment in infrastructure in order to make a really big difference. I really think there are three factors. There’s gotta be tax incentives and financial incentives; there has to be focus on infrastructure; and there has to be additional emphasis placed on education. The U.S. has to start graduating many, many more engineers and math and science majors than we have in the past twenty years or so, so there’s gotta be some emphasis there.
Dustin: And do you have any final recommendations for companies considering moving manufacturing back to the U.S.?
Rosemary: I think it’s certainly worth a try. The one thing that we counsel our clients about is not to just simply close up shop in China and move back to the U.S. I mean, that’s really not a very good strategy, and it’s not very thoughtful. You really have to make sure that you are aware of all the implications for manufacturing and also that you wanna pay attention to the Chinese market because it’s the largest target market for consumers in the world, so you don’t want to just walk away from the ability to address that market and to manufacture good that are gonna be sold in that market. So, the caution is: Go slowly and do a lot of evaluation to determine what’s the right answer for both China and for the U.S.
About Rosemary Coates
Blue Silk Consulting