The right to protect your sourcing

September 4, 2008
By: Dan Davis

We have an outstanding resource center here at the Fabricators &
Manufacturers Association
. If you are an FMA member, you probably already know that after having taken advantage
of some of our research or information-gathering capabilities.

We also have access to many industry magazines. I picked up the August 2008 issue of Industry Week—yes, the magazine comes out monthly—and read the cover story, Welcome Back U.S. Manufacturing.

I"ve heard this comment in a few circles. Large OEMs are bringing back some metal fabricating work to the U.S.
because transportation costs have risen dramatically and quality standards were never achieved with Chinese subcontractors.

The Industry Week feature began with the story of how Desa LLC, a seller of heating products and other consumer goods, was bringing back heating unit manufacturing from China to Bowling Green, Ky., because the cost of shipping assembled products was too great. Desa moved a majority of its manufacturing to China in 2004, and it received a 15 percent value-added-tax rebate from Chinese authorities on the company"s exports. That rebate was lowered to 5 percent in July 2007, right before the giant spikes in fuel and raw material prices. All of a sudden, China wasn"t synonymous with cost-effective.

In July Desa announced that it was expanding its work force—currently at 450 employees—and its
250,000-square-foot facility in Bowling Green. Desa Heating Products" decision to move production back to Kentucky is a strong indicator of evolving outsourcing trends in the global economy, said Kentucky Gov. Steve Beshear at the press conference.

I hope he"s right, but as my wife clearly reminds me in our own verbal spats, one example does not make a trend.

AMR Research Inc. conducted a survey of 113 manufacturing
executives in May and found that 23 percent planned to increase sourcing in the U.S., and 30 percent stated they
wanted to increase sourcing near-shore in a place such as Mexico. However, in that same survey, only 9 percent planned to decrease sourcing to China.

Chinese manufacturing actually contracted in August, according to surveys. That lull represents the biggest slowdown for Chinese manufacturers since November 2005. But it might have more to do with the
government"s restrictions on limiting manufacturing emissions and transportation in an effort to clear the air
before the recent Olympic games.

Whatever the case, a small victory should still be celebrated as a sign that U.S. manufacturing can be competitive against the world. And maybe the trend will continue as Chinese manufacturers have to contend with rising wages, the loss of subsidies, and developing economies in places such as Vietnam.

For the longest time, I have read how China has walked a tightrope—contending with a fragile banking system and unrest in the rural areas, while simultaneously ensuring the economy grows at a high rate to ensure employment in the new, gleaming cities constructed over the past decade. I don"t know if China is growing weary from the balancing act, but the winds of change are making it harder to stay on top of everything. Maybe U.S. metal fabricators can benefit as more multinational companies yearn for more predictability and turn back to North America for manufacturing support.

Dan Davis

Dan Davis

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8281