Not Made in China

Monday, October 28, 2013
Amy Keller

I-Con Systems, a Seminole County company that makes plumbing control systems for correctional institutions, had been manufacturing its components in China for about a decade when CEO Shawn Bush began thinking about moving manufacturing operations back to Florida.

Like most manufacturers, Bush says he was originally lured to China by lower labor costs, but had encountered a number of problems in dealing with his overseas manufacturer, including the language barrier, a lack of consistent quality and a time lag in receiving material.

A critical moment came when all three problems occurred at the same time with a key vendor. “We had a large shipment that was delayed by a vendor, and when it was received, it did not pass our quality control,” says Bush, who was unable to communicate with the vendor to explain the issue and get it corrected in a timely fashion.

After scrambling to save the customer and the project, Bush decided that the offshore relationship was not working and began acquiring equipment, personnel and the skills to bring the key items in-house to his factory in Oviedo in Seminole County.

“We began moving manufacturing about two years ago and now do 90% of our manufacturing in-house,” says Bush, who has hired 15 additional workers and purchased more than $300,000 in equipment to aid his growing manufacturing operation.

Over the past 10 years, manufacturing has grown from 4.9% of the state’s GDP in 2002 to a high of 5.7% in 2007 to 5.3% last year.

The “reshoring” trend has picked up pace across the U.S. as labor costs in China, India and other countries have begun to rise. While American wages have flatlined over the past several years, wages for the typical Chinese factory worker have increased almost sixfold over the past decade, from 62 cents an hour in 2003 to about $3.50 an hour today.

High Concentration
Counties where manufacturing jobs are at least 6% of total employment.

Although that’s still dramatically lower than the average hourly wage of around $19.30 for a U.S. factory worker, the higher productivity of American workers means China’s labor-cost advantage drops to about about 55%. In addition to wage inflation, a higher rate of employee turnover, a sharp rise in China’s currency and intellectual property theft are also driving up manufacturing costs in China, along with the costs associated with difficulties like those Bush encountered. The natural gas boom, meanwhile, has dramatically reduced energy costs for U.S.-based factories.

As the manufacturing cost difference between the U.S. and China shrinks, it often makes better sense to bring production closer to market, says Dave Sievers, a principal at the Hackett Group, a Miami-based consulting firm that advises manufacturers on offshoring and reshoring.

Sievers also says that companies that manufacture closer to home can be more responsive to customers who need finely tailored specifications or customized changes to the products they’ve ordered. “It tends to be better to have the production closer to the market,” he says, “so it’s easier to provide those value-added services, so you can be more responsive.”

When U.S. Block Windows, an acrylic block window manufacturer in Pensacola, bought out Hy-Lite in 2009, Hy-Lite was outsourcing most of its injection molding to China. Roger Murphy, president of Hy-Lite/U.S. Block Windows, says steep shipping and warehousing costs and logistical headaches convinced the company to bring that work back.

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Publication:
Florida Trend Magazine