Moving production back to the United States from overseas is a noble idea, but the trend has been slow in developing. Experts hope to convince manufacturers that soon, it will be as inexpensive the make things here as it is in China.
CLEVELAND, Ohio -- It's an economic development strategy with mass appeal: bringing back to the United States jobs that went overseas decades ago -- a bright idea in an era when high corporate profits coincide with stubbornly high unemployment.
Alas, despite predictions of an insourcing resurgence and a few well-publicized cases, reshoring for now looks more like a noble ideal than an actual trend.
When economic development experts convene in downtown Cleveland this week for a Reshoring Summit, many will still be trying to convince a skeptical business community of the merits of making things in America.
Even Harry Moser, the former Clevelander who founded the national Reshoring Initiative, acknowledges the crusade has far to go.
"It's more than a trickle," he said of the jobs returning from places like China. "But we'll admit that it's less than a torrent."
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Staff members work on the production line at the Foxconn complex in the southern Chinese city of Shenzhen, Southern city in China. Foxconn makes iPhones and other electronics that get imported to the United States, but experts say the benefits of offshoring such work are shrinking.
The basic case that some analysts have been making for several years hasn't changed -- labor rates in India and China are rising, eliminating some of the benefits of producing overseas; high oil prices make it more expensive to ship goods across the globe; and American worker productivity is hitting record highs, overcoming the cost benefits of producing in low-wage countries.
But so far, those favorable business conditions haven't created a lot of jobs.
According to Moser's tally, 50,000 jobs have returned to America from 2009 to 2012, not nearly enough to make a dent in the ranks of 12 million unemployed. Still, five years ago the number of jobs coming back was close to zero, Moser contends. The 50,000 represents about 10 percent of all manufacturing jobs created over the last three years. Experts believe more are coming.
The challenge is figuring out why the reshoring renaissance has been so slow and what needs to happen to kick-start the movement.
Reshoring success stories
Ben Suarez grabbed headlines two years ago when he moved space-heater production from China to the old Hoover plant in North Canton. When experts talk about reshoring, they generally talk about high-tech, high-skill work, not manufacturing small home appliances.
Seeking better quality and quicker delivery, Suarez Manufacturing began designing and assembling its high-performance heaters with local workers using locally supplied parts. Today, more than 200 people work at the complex, and Suarez is considering reintroducing vacuum cleaner production.
Economic development officials point to the auto industry for other reshoring success stories.
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Buck Wilder installs a timing chain on an EcoBoost V-6 engine at Fordâs Cleveland Engine Plant No. 1 in Brook Park last year. Ford plans to invest $200 million at the plant to bring an engine line there from Spain by the end of next year.
Ford is in the midst of two massive projects -- moving engine production from Spain to Brook Park and moving heavy-truck production to Avon Lake from Mexico.
The automaker announced plans last month to move its 2-liter EcoBoost engine to its Cleveland Engine Plant No. 1 in Brook Park by the end of next year. At about that time, it plans to bring F-650 and F-750 large-truck production to Avon Lake.
But in Ford's high-profile cases, productivity and labor costs weren't the driving factors. Ford plans to use the 2-liter engine in most of its cars and crossovers within the next few years, so importing it from Europe was too costly.
And the decision to move truck production was driven by the collapse of Ford's business relationship with International Truck, the joint-venture partner at the Mexican plant.
In both of the Ford cases, contract negotiations with the United Auto Workers played into Ford's decisions to shift production to Ohio.
Hal Sirkin, a senior partner with the Boston Consulting Group's Chicago office, was co-author of a 2011 report that predicted a big upsurge in reshoring within the next few years. He said labor unions have been big players in many of the early cases of reshoring.
In Louisville, for example, General Electric has moved some appliance production back to the United States from overseas because of concessions from unions.
"We've seen a lot of good thinking on the part of management and the unions," Sirkin said.
Still a trickle, not a flood
Still, the success stories are few, and many of them seem to be based on specific issues, such as union contracts, rather than a big shift in America's economic competitiveness.
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Cleveland CycleWerks founder Scott Colosimo talks about his company with visitors to a motorcycle gallery show last year at the 1point618 Gallery in the Gordon Square neighborhood. Colosimo had hoped to have motorcycle production started in Cleveland by now, but lack of financing put his plans on hold.
Building things here instead of overseas is still very hard, Scott Colosimo said.
Last summer, Colosimo announced plans to shift some production of his Cleveland Cyclewerks motorcycles to Cleveland's Gordon Square neighborhood from China. Sales of the small bikes have been booming worldwide, and he wanted more control over production than he was getting at the Chinese contract manufacturers he was using.
Instead of having a humming factory, though, he's gotten a stack of loan rejections from banks. Without more working capital, he can't get equipment into his factory. The project is stalled until Cyclewerks can earn enough money to equip the plant from its own profits.
"It's really frustrating for us. We're trying to do something good. We're trying to get jobs back," Colosimo said. "I have Chinese banks begging for my business over in China. I can't get anybody to work with me over in the U.S."
Howard Wial, executive director of the Center for Urban Economic Development at the University of Illinois in Chicago, co-wrote a study about reshoring last year for the Brookings Institution with Case Western Reserve University economist Susan Helper.
Wial said companies like Cyclewerks always have trouble finding financing, and that's one area where better governmental policy could help spur more jobs coming to this country.
"I don't think that it will be more than a trickle without more supportive policy at all levels of government," Wial said.
He added that federal trade officials need to get tougher on China about currency manipulation, trade policies need to encourage U.S. production, and the federal government should offer loans and expertise to startups as governments in Japan and Germany do.
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Workers at Suarez Manufacturing Industries plant in North Canton assembly the company's EdenPure space heater in this 2011 file photo. Suarez has successfully moved heater production to Northeast Ohio from China and hopes to add vacuum cleaners in the near future.
Another challenge that insourcers face is a dormant supply chain. When the manufacturing jobs left, so did a lot of expertise.
As they sought to find local or at least American-made parts, Suarez executives often found themselves having to persuade a local supplier to restart an assembly line.
"They would tell us, 'We haven't done that in a while,' " said Hope Paolini, the company's operations manager. "I had to push them for quotes."
She said that it took months to find two American companies to make the motors to power Suarez's EdenPURE heaters but that the search was worth it. Those companies are now nudging their local suppliers to get active again.
"Anybody can do this," said Paolini, who speaks about American manufacturing with an evangelist's zeal. "All you have to do is get people to believe, and it snowballs. We have all these machines in Ohio sitting idle. We know how to make this stuff!"
Conditions remain right for a boom
Sirkin from Boston Consulting still stands by predictions of a jobs boom by 2015. Rising labor costs in China, coupled with rising productivity in the United States, should make it much more attractive to produce things here in the very near future.
"We know it will take awhile," Sirkin said, adding that companies that decide today to move production to the United States will take years to build plants and train workers. "All of this is happening. You're not going to see much of it until 2015."
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ArcelorMittal has invested millions of dollars in recent years to boost productivity at its Flats steel mill. The galvanizing line makes high-strength steels used by automakers and appliance companies.
The biggest issues are cost and productivity. A decade ago, Chinese workers earned about 58 cents per hour. American manufacturing workers earned more than 20 times that. American workers were 10 times more productive than their Chinese counterparts, but that wasn't enough to protect jobs.
Sirkin said Chinese productivity has gone up. The average American worker is now only about three times more productive. At the same time, Chinese labor rates are getting closer to half of U.S. rates. So the cost advantage has eroded.
"The economics haven't shifted all the way yet, and it takes time for companies to act on this kind of data," Sirkin said. But the trend line is clear.
"It's moving in the right direction," said Rebecca Bagley, the president and chief executive officer of NorTech, a technology-focused economic development agency in Cleveland. "The bottom line is, the financial benefits of manufacturing overseas are really starting to melt away."
Moser, head of the Reshoring Initiative, believes some companies need only a nudge, along with facts, to resolve to bring jobs home.
Focused on labor costs, but not much else
Moser, an MIT-trained engineer, worked for a Cleveland manufacturer earlier in his career. He then spent decades building a Chicago-area machine tool company into a $100 million enterprise. Upon his retirement in 2010, he started the initiative to guide companies he saw on the wrong path.
He thinks many got caught up in a craze.
"They were going to go to China and save money, but they never did their homework," Moser said.
Focused on labor costs, many companies failed to consider shipping costs, energy costs, quality control issues and risks to intellectual property. Then they spent millions on a factory and got stuck there.
"It's pretty hard, politically, within your company, to admit that was a mistake," he said.
Still, fads fade and Moser believes outsourcing will fade as well.
He expects the summit to attract local manufacturers, as well as researchers and consultants, and Moser said he knows how to talk to men and women who run companies much like the one he managed.
He said he won't appeal to their patriotism or community loyalty.
"Their attitude will be, 'Where can I make the most money?' " Moser said. "I try to show them they can make the most money here."
Co-written with Plain Dealer reporter Robert L. Smith