As director of Mississippi State University’s Franklin Furniture Institute, Bill Martin has an up-close familiarity with the American “reshoring” trend, especially its implications for furniture manufacturing in Mississippi.
He’s not convinced the trend of factories leaving China to return to the United States has arrived in Mississippi, but change is under way and the Magnolia State is feeling its effects. “It may not be ‘reshoring’ but we are seeing that jobs are not leaving,” he said.
“We are investing domestically rather than taking those jobs overseas. Several furniture companies have expanded.”
Boston Consulting Group’s Harold L. Sirkin has looked at the issue in great depth and concluded the United States is on a fast track toward regaining the factory jobs that have departed over the last quarter century. In five years, the rebound will be clear to even the most skeptical, said Sirkin, a senior partner with the global management consulting firm and lead author of the much-discussed report “Made in America, Again: Why Manufacturing Will Return to the U.S.”
How much lost manufacturing does he see the United States regaining? “Twenty percent,” he said, though he added: “We think that is probably an understatement but it is good to be conservative.”
In the “Made in America, Again,” report Sirkin cited Alabama, Tennessee and South Carolina as states most likely to see the trend first. Further review has found the early evidence of reshoring to be less regionally limited than initially thought, he said in an interview late last month. “Mississippi would certainly be on the list,” he added, and cited the appeal of the state’s modest corporate income tax.
What has occurred is simple, Sirkin said. “The pendulum swung. Now it is swinging back. In the next five to 10 years we’re going to see the benefit of it.”
Rising wages in China and declining wages in the United States are providing the push. And as China’s wages have risen, China must devote more factory capacity to meeting its own consumer demand.
Furniture-making is “clearly one of” the manufacturing categories participating in the exodus from China, he said, citing the abundant supply of wood in the eastern United States and the expense and difficulty of shipping the wood to China and having it shipped back as finished or partially finished furniture.
Martin, the Franklin Furniture Institute director, said he thinks extensive re-evaluations are occurring among furniture makers. What they decide could have huge implications for a sector that in 2006 employed 30,000 Mississippians and had an annual output value of more than $3.5 billion, of which value-added accounted for nearly $1.5 billion.
Typically, Mississippi has lost cut-and-sew work to China while keeping some of the manufacturing of frames and other components, Martin said, describing a process by which the cut-and-sew work comes back to Mississippi to be upholstered onto the finished furniture.
What’s changed, he said, is that with the cut-and-sew “a lot of it is staying and not going.”
And in China, “a lot of people are evaluating whether to keep it there or bring it back home.”
La-Z-Boy has switched a lot of its cutting and sewing from China to Mexico. Martin said he is unsure if this is a sign that Mexico will claim a significant portion of the new manufacturing that would otherwise be coming to Mississippi and other low-cost manufacturing states. “Maybe the cutting does not come back to the U.S. but maybe the sewing does,” Martin said. “Anything we can get is better than we are today.”
Martin cites federal tariff policy – customarily designed to benefit domestic manufacturers – as an impediment to any significant return of cut-and-sew to U.S. shores. “The reason cut-and-sew has not come back as fast is because of federal import duties. There are duties applied to roll goods coming,” he said. “Those duties are attached to protect domestic manufacturing of textiles,” though not a lot of textiles mills are still operating in the United States.
No duties are put on cut-and-sew goods exported into the United States. “It is backwards,” Martin said of the two tariff polices.
Meanwhile, Mississippi is bidding for a return of cut-and-sew by offering manufacturers a $2,000 tax credit for each cut-and-sew job brought back into the state, according to Martin.
Another factor in Mississippi’s favor is the consumer’s insistence on getting the product right away and the priority manufacturers put on doing just that, Martin said.
“When the consumer wants more, better and quicker, I think you’ll see more people making products domestically so they can better serve their customers,” he added.
More than timely deliveries are in play. Think warehouse space, suggests Leland Speed, who twice served as head of the Mississippi Development Authority and is chairman of national industrial real estate firm East Group.
The retailer wants to get the product to the consumer right away, but insists the manufacturer warehouse the product until it’s called on for shipping to the consumer. “They don’t want to inventory it; they want you to inventory it.”
So it makes sense to be in the United States where deliveries from the factory can be timed in hours and days, not weeks, Speed said.
A “very interesting example here in Mississippi,” Speed said, is Ashley Furniture, the nation’s largest furniture retailer with upholstery operations in Ecru and Ripley. The Wisconsin-based furniture maker is trying to achieve a balance between the advantages of lower labor costs abroad and gaining the benefits of on-demand deliveries to retailers, Speed said.
“They are figuring out what can still be made overseas at a cost advantage because of labor but figuring-in the other factors.”
People have realized, he said, “that the cost of labor is a significant component in a manufacturer’s cost, but it is a long way from being the only thing. They are also discovering that customers are much more interested in having what they want when they want it.”
Harry Moser, a Chicago business consultant and nationally known reshoring advocate, said in an interview the inventory issue is growing in significance. “Because companies are fighting to get their inventories down and be responsive to their customers, the best way to do that is to product the product next to the customers” and eliminate much of the logistical headaches, he said.
Speed said companies that offer a “real-time” inventory for machinery replacement parts are already concentrated in Mississippi’s farm equipment sector and could represent a significant growth area for the state.
Speed, who spent 2011 as Mississippi’s chief economic development executive, said from his perspective as both an industrial recruiter and specialist in industrial real estate, said he thinks rehsoring is a genuine trend. “The hemorrhaging in America from lack of manufacturing jobs, in my opinion, is over.
“Having said that, we are producing more than ever with fewer people.”
Speed’s former agency, the Mississippi Development Authority, says the entire state is positioning to benefit from the return of manufacturing from abroad.
Perhaps no development reflected the reality of reshoring more than Caterpillar’s decision earlier this year to open a plant in Athens, Ga., rather than expand its plant in Japan, said Skip Scaggs, director of global investment and retention at the MDA
“This is the first really big one in this region that says, ‘Hey, this is real.’”
The move differed from traditional reshoring in that it involved Japan and related more to the strengthening of the yen and Caterpillar’s need to be closer to emerging markets in South America, Scaggs said.
Caterpillar cited Athens’ proximity to the ports of Savannah, S.C. and Charleston, S.C. as a big factor in its selection.
By that reasoning, states with seaports may enter the reshoring sweepstakes with a built-in advantage, Scaggs said. Transportation coasts are a big reason reshoring is occurring in the first place. “With water being the most inexpensive mode of transportation, ports will play a critical role,” Scaggs said.
The upgrades and expansion of the Port of Gulfport could not come at a better time, he noted.
“We think we’re positioning not just the South but the entire state. And from somewhat of a regional perspective, we’re in a better position to take advantage of the Port of Gulfport’s attributes – the distance to international waters gives us a competitive advantage over New Orleans and Mobile.”
Donald Allee, executive director & CEO of the Mississippi State Port Authority at Gulfport, said Mississippi’s established trade links to South America will factor into reshoring decisions. “For a long time people just talked about the East-West Axis but there is also a North-South Axis. That axis includes the Caribbean, Latin America and the South American continent. And you can throw the west coast of African in because it’s on the brink of being an emerging market,” Allee said.
If manufacturers are in Asia and looking to serve growing South American markets at lower cost, Mississippi would make sense, Allee said. “That is why it’s important that our plan for restoration and growth (of the Port of Gulfport) stays on path.”
Just how important is a seaport in the reshoring equation?
Illinois Gov. Pat Quinn answered that question in explaining why Illinois, the headquarters home of Caterpillar, did not even try to attract the Caterpillar small tractor-excavator plant that is going to Georgia. “We don’t happen to have, in our state, a deep sea port. We’re not on the ocean.”
Editor’s Note: This is the second in a series that looks at reshoring in the United states in general and in Mississippi in particular. Read part one here.
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