Looking Up: Pockets of Economic Strength
3:18 pm
Tue March 13, 2012

Factories 'Reshore' Some Work From Overseas

Originally published on Thu March 15, 2012 12:44 pm

Part of a series

During the worst of the Great Recession, U.S. factory jobs were disappearing at a furious pace. As 2007 began, about 14 million Americans were working in manufacturing.

Three years and one frightful recession later, only 11.5 million were.

But since 2010, employment has been ticking back up, with companies adding about 400,000 jobs.

One reason for at least a small portion of that growth: the return of factory work from overseas. Experts say it's difficult to accurately measure the number of jobs tied to work returning from other countries, but some employers say they know it is happening.

Reversing A Herd Mentality

Howard Hauser, a vice president with Hiawatha Rubber Co., says for a long time, manufacturers followed a herd mentality of sending work offshore. They all wanted components produced in low-wage, emerging markets like China.

"They were looking at the piece price. And it looked like, 'We're going to save a lot of money,'" he said. "But the bottom line was they didn't save nearly as much as they thought. And with the quality issues, they're just not getting product that's acceptable for the customer."

Now Hiawatha, based outside Minneapolis, is getting those contracts.

And Hauser has himself decided to "reshore" production of a component that was being made in China. The move will result in three new hires at his plant.

He says the part was not difficult to make, but the Chinese factory kept botching the job. He says Hiawatha, which makes rubber components for equipment such as printers and pumps, can do it better.

From Soup To Overtime

As business picks up and hiring resumes, the employees at Hiawatha are feeling more confident now. But it's still painful to recall the recent tough times when orders dropped off about 40 percent and production hours were slashed.

One worker, Richard Beaulieu, says he had to make do while working just three or four days a week.

That went on for nearly a year. His memory of that lean time: "Many, many months, and a lot of soup," he says. "But you just buck it up and get through it."

Beaulieu and the other 65 full-timers are back to normal hours now — and can even count on some overtime.

The U.S. Looks More Competitive

Dan Meckstroth, an economist with the Manufacturers Alliance for Productivity and Innovation, says labor in the United States is looking more competitive internationally for a number of reasons.

For one, U.S. wages are still depressed because of the relatively slow overall recovery. At the same time, wages have been rising in emerging markets. In addition, the skill level of American workers is generally higher. And the supply chain disruptions after last year's Japanese disasters made some companies skittish about outsourcing to Asia, he said.

But Meckstroth says it's hard to quantify any job gains from "reshoring." The number may not be great, but at least the trend line is good, he said.

"I'm not saying there's a tsunami of production coming back to the United States. It's a trickle," Meckstroth said. "But a trickle back is better than the tidal wave out."

But at Hiawatha Rubber, Hauser does not think the future of manufacturing lies in bringing work back, even if that's benefiting his company now. He believes greater productivity for the sector will come through increased automation. At his factory, more automation will eventually mean fewer workers. But the workers who do remain, he says, will be high-skilled and high-paid.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

As the economy has come back, manufacturing companies have been doing much of the hiring. Some of those jobs are in factories that have picked up work which used to be done overseas. It's pretty hard to say exactly how many jobs this amounts to. Still, it is a happy development for some workers.

NPR's Annie Baxter went to Minnesota to look into the trend that some call insourcing and others call reshoring.

ANNIE BAXTER, BYLINE: Like a lot of manufacturers, Hiawatha Rubber Company hit a rut in the recession. The factory is based outside Minneapolis and makes rubber components that go into things like printers and pumps.

When business dropped off about 40 percent in the downturn, production hours were slashed. Workers like Richard Beaulieu had to make due working just three or four days a week. That went on for nearly a year.

RICHARD BEAULIEU: That was a long time, many, many months. Many, many months and a lot of soup. Let me tell you. A lot of soup, but you just, you know, suck it up and get through it.

BAXTER: Beaulieu and the other 65 full timers are back to normal hours now and can even pull some overtime. That's thanks in part to the uptick in the economy driving demand for products like the one Beaulieu is making on this day. He's operating a molding machine that makes rubber parts for a radiator. The machine looks like a giant waffle iron. After the molding process is completed, Beaulieu secures a plate over the parts.

(SOUNDBITE OF BANGING)

BEAULIEU: And when you lift it up, that's how you get all your parts off the bottom of the mold. Interesting, huh?

BAXTER: But it's not just economic improvements that are keeping workers like Beaulieu in good spirits and machines like this humming lately. On top of that, work that had been sent overseas is now coming back and landing at Hiawatha Rubber.

Howard Hauser, a vice president here, says for a long time, manufacturers followed a herd mentality in sending work offshore. They all wanted components produced in emerging markets like China.

HOWARD HAUSER: They were looking for piece price. The piece price, you know, looked like - OK. We're going to save a lot of money, you know, but the bottom line was they didn't save nearly as much as they thought and, with the quality issues, they were just getting a product that's, you know, not acceptable for the customers.

BAXTER: Now, Hiawatha's getting those contracts and Hauser has himself decided to reshore production of a component that was getting made in China. It will result in three new hires at his plant. He says the part was not hard to make, but Hiawatha can do it better. The Chinese factory just kept botching the job.

DAN MECKSTROTH: They don't have the transportation systems. They don't have the educational systems. They don't have the infrastructure that we do.

BAXTER: Dan Meckstroth is an economist with the Manufacturers Alliance for Productivity and Innovation. He says labor in the U.S. is looking more competitive internationally lately for a lot of reasons.

Labor costs in the states are still depressed due to the weak recovery, whereas those costs are rising in emerging markets. The skill level of American workers is higher and supply chain disruptions after the Japanese disasters made some companies skittish about outsourcing to Asia.

But Meckstroth says it's really hard to quantify any job gains from reshoring. The U.S. has added about 400,000 manufacturing jobs over the past couple of years. It's unlikely that lots of them are tied to work returning.

MECKSTROTH: It's a trickle, but a trickle back is better than the tidal wave out.

BAXTER: However many jobs he might add, Meckstroth says manufacturing is never going to make up the ground it lost in the recession, which is on the order of two million jobs. Surprisingly, that's not a fact Howard Hauser at Hiawatha Rubber Company laments.

HAUSER: You hear all the politicians, you know, talking about, you know, we want to bring back jobs. It's not about bringing back the old kind of jobs. We need to be creating new jobs, the technology jobs.

BAXTER: At his factory, Hauser's looking to automate a bigger share of production with robotics. That's especially true for a new business line they're launching for waste water treatment systems. The work will require tech savvy employees who can program robots to take over the manual labor.

HAUSER: You should be chasing no labor, which is, you know, what we're doing.

BAXTER: So, even as work is coming back from offshore and increasing the head count at its factory now, Hauser expects automation will shrink his workforce down the road. That might sound harsh, but he says the workers who stay on will be high skilled and high paid.

Annie Baxter, NPR News, St. Paul.

BLOCK: And you can find more stories in our series Looking Up: Pockets of Economic Strength at NPR.org. Transcript provided by NPR, Copyright NPR.