Reshoring Reaches Connecticut Manufacturers
As World War II came to a close, manufacturing in Connecticut employed close to half the state's working population. Now it accounts for only eleven percent of employment. That dramatic decline over half a century is due to one irresistible force: off-shoring, and the loss of work to cheaper labor markets in Asia. But that force may not be so irresistible after all.
Reshoring is the "it" word right now in manufacturing, a concept that first started to surface around four years ago, while we were still deep in the grip of the great recession. Instead of work continually disappearing overseas, some of it might actually start to come back the other way.
Bonnie Del Conte of CONNSTEP, a non-profit that helps manufacturers compete globally, said that for a number of years, businesses sought overseas production, looking for quality. "The delivery would be quicker, faster, [and] on time," she said, "because of efficiencies they could maybe do for the cost of labor." But, she added, "It's not necessarily so."
David Kelly, the General Manager at NPI Medical, a medical device molding company, gazed through a window at a massive, box-like machine. "This is one of those pieces of equipment that provide a competitive advantage," he said. "This is fully automatic, and it runs 24 hours a day, seven days a week."
Kelly has been in the precision manufacturing business for decades, and he's seen the trends up close. "Back 20 years ago," he said, "the savings were astronomical. More like 60 percent to have a tool built and developed in Asia."
NPI Medical, based in Ansonia, works on contract, molding parts for other companies that design medical devices, and it is often asked by its clients to price manufacturing in Asia. "People were drawn, and still are to this day, to Asian tooling, and there are a lot of really very good shops there."
Kelly said, however, that there are also a lot of companies that are really bad. That variation in quality is driving a new trend, as parts for medical use get more complex and more exacting. "If you have a critical design, you don't want to send it overseas," he said.
Kelly cited a client company that went through a redesign of one of its medical tools, and decided to try to save a bit of money in the process. "We lost the business," he said, "because they took the whole package, and went to Asia, and managed it themselves. We didn't hear from them for about a year and a half. Then we got an email and a couple of phone calls, and [they] said, 'We have a major issue. We can't assemble our product. We're not getting good parts. We've already made a visit there. It cost us $13,000, and we can't afford to go there again. Will you help us?'"
In practical terms, Kelly said, as productivity and technology have improved here, and wages have gone up there, the economic gap between Asia and Connecticut has narrowed dramatically.
Others agree, like Marco Annunziata, chief economist for General Electric. "It's natural," he said, "that over time, as emerging markets catch up, they achieve higher levels of income. Wage levels increase, and therefore erode the initial advantage they had."
That wage dynamic, along with skyrocketing transportation costs, means that the world is flatter now, according to Annunziata. The competition isn't really over wages anymore. It's about skills, and the ability to perform more complex tasks.
GE has reshored the manufacture of its appliances, with a $1 billion investment in Kentucky. Since 2009, GE has announced plans to create 13,000 industrial jobs in the U.S., but Annunziata said that is not the company's primary focus. "When we look at our job creation efforts," he said, "we really look at it from a global perspective. The efforts we are involved in are really aimed at creating jobs globally, across the world, rather than moving jobs from one country to another."
In other words, the jobs will go where it makes the most sense to put them. Peter Gioia, chief economist for the Connecticut Business and Industry Association, said he believes Connecticut shouldn't hope for a major jobs boom from reshoring. "I think the benefits of it are probably going to go to places that are lower -cost places within the U.S. than [in] Connecticut," he said. Maybe there are some types of work that just aren't meant to come back to the state.
At Acme Wire Products in Mystic, Mary Fitzgerald showed off a large wire grid, the kind that protects the bottom of your sink from being scratched. "This is a project we were asked to quote on at the end of 2013," she said. The work was for a customer with whom Acme had a previous relationship.
In recent years, the client had gone overseas to set up a cheaper supply chain. Then they got the "Made in the U.S.A." bug, according to Fitzgerald. The company's buyer contacted Acme, and asked for a price on Connecticut-based production of the sink grid. Acme made a prototype, and priced out the project, only to see the company decide to keep the work in Asia.
Despite the client's desire to reshore, the cost differential was too big to swallow on an item that was already in production.
Fitzgerald said she is getting more frequent requests to quote for reshoring jobs just like that, perhaps an indication that companies feel more pressure to manufacture here. Her feeling is that work will remain hard to win.
Where Fitzgerald is seeing more success is in new projects that have never been tooled or produced in Asia, where the playing field may be more level. New jobs, ones that have never been off-shored, but are now being quoted here, are known as new-shoring, or on-shoring.
"Actually," Fitzgerald said, "there was a project that we just started up within the last month, where the customer was comparing our proposal to one they had in Asia. Our tooling cost was a bit higher, but our lead time was shorter. That was what swung the opportunity to us. The time to market is actually becoming more critical."
Time to market, more precise engineering, the security of intellectual property, and greater automation are all reasons that reshoring, or at the very least new-shoring, is starting to become a reality in Connecticut manufacturing.