In years past, if you bought an iPhone case from Fort Collins-based OtterBox, the nation’s leading cellphone casemaker, it was a given that the product, like the gadget it protects, wasn’t made in the U.S.A.
That’s starting to change.
“We’ve been able to reshore about 15 to 20 percent of our volume back to the U.S. from China over the last year,” said Bill Lovell, OtterBox’s global director of supply chain.
The “reshoring” trend is taking hold in Colorado and across the country, providing an economic boost to local communities at a time when other companies continue to tighten budgets and cut jobs.
In February, General Electric opened a $38 million manufacturing plant in Louisville, Ky., and said it plans to invest $1 billion in its appliances business and create 1,300 American jobs by 2014.
Chinese electronics giant Lenovo, which acquired IBM’s personal- computer division in 2005, announced this month that it plans to open its first PC plant in the U.S. in North Carolina early next year, a move that will add 115 manufacturing jobs.
“Lenovo is establishing a U.S. manufacturing base because we believe in the long-term strength of the American PC market and our own growth opportunities here,” Lenovo chairman Yuanqing Yang said in a statement.
A few factors are enabling or encouraging companies to make products in America rather than overseas, most prominently the shrinking wage difference between the U.S. and China, experts say.
“The differential in wages is narrowing and is expected to continue to narrow,” said Richard Wobbekind, an economist with the University of Colorado’s Leeds School of Business. “Part of that is being driven by the value of Chinese currency rising over time, so that makes the cost differential significantly less.”
As the wage gap is closing, shipping and transportation fees are rising, largely because of higher energy costs, he said.
“A third piece that’s often discussed is the supply-chain effects — when you have something so far away, the supply chain can be disrupted by late shipments,” Wobbekind said.
Through the end of this decade, 2.5 million to 5 million direct and indirect manufacturing jobs will return to the U.S., predicted the Boston Consulting Group, a global management-consulting firm. That estimate includes European and Chinese companies moving manufacturing to the U.S., such as the planned Lenovo plant in North Carolina.
Boston Consulting Group senior partner and managing director Hal Sirkin said wages in China are rising at 15 percent to 20 percent a year.
Citing data from the Department of Labor, he added that “the U.S. worker in 2011 was 3.2 to 3.4 times as productive as the Chinese worker.”
“Some of that’s automation; some of that’s lean manufacturing,” Sirkin said. “It has a lot of aspects to it, but it fundamentally makes it so the cost to produce in China now is getting closer to, if it’s not the same as, the cost to produce in the U.S.”
In August, Colorado’s manufacturing sector employed 133,100, an increase of 5,600 jobs from January 2011.
A tiny portion of that boost came from Colorado Flexible Heaters, an independent maker of heaters for roofs that moved the production of its systems from China to Glenwood Springs last year.
The company opened a local manufacturing plant in May 2011 and found that it could make the heaters about 25 percent cheaper, said founder Dave McKenna.
“Once we were set up with all the machinery, and the tooling and the knowledge of how to put these heaters together, we could beat the price of importing them from China,” McKenna said. “We were getting to a point where we were buying these heaters for roughly $20 a linear foot. Now we’re building them for under $15 a linear foot.”
The company’s Glenwood Springs plant employs three people and stocks about $50,000 worth of product.
For companies such as OtterBox, cost isn’t the only factor when deciding where to manufacture goods.
Time to market is key for a company competing in a consumer-electronics industry that is releasing and refreshing products at a much faster clip than a decade ago.
“In a very fast-flowing market, where there’s lots of new devices released on an ongoing basis, being able to have your product available on the first day that the smartphone is available in the store is pretty critical to our business,” said Lovell, the company’s supply- chain director.
OtterBox estimates that its decision to reshore some manufacturing has created 485 jobs at five major U.S. suppliers, including two in Colorado. The company expects that figure to grow as it focuses on moving more of its production to the U.S.
“If you can overcome some labor with automation and manufacturing techniques, you can come pretty close to being able to manufacture competitively,” Lovell said.
Despite the recent reshoring trend, companies will continue to outsource internationally as they seek to maximize profits. That isn’t necessarily a bad thing, says the Colorado Association of Commerce & Industry, the state chamber.
The organization defended manufacturers that expand operations abroad in a recent newsletter. Citing statistics from the National Association of Manufacturers, CACI notes that American companies with operations abroad employ an estimated 22 million people, including more than half of all manufacturing workers, in the U.S.
Tom Clark, chief executive of the Metro Denver Economic Development Corp., said as China’s competitive advantages diminish, companies are also looking to move manufacturing to Vietnam, Thailand and Burma.
Sirkin of the Boston Consulting Group said the manufacturing shift is a natural rebalancing of the global economy.
“Now that the wages in China have risen as part of the global shift in economics,” he said, “jobs are starting to come back to the U.S. and production is starting to come back to the U.S.”
Andy Vuong : 303-954-1209, avuong@denverpost.com or fb.com/byandyvuong
