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Small U.S. Manufacturers Give Up on ‘Made in China’

When Sonja Zozula and Jerry Anderson founded LightSaver Technologies in 2009, everyone told them they should make their emergency lights for homeowners in China. After two years of outsourcing to factories there, last winter they shifted production to Carlsbad, Calif., about 30┬ámiles from their home in San Clemente. ÔÇ£ItÔÇÖs probably 30┬ápercent cheaper to manufacture in China,ÔÇØ Anderson says. ÔÇ£But factor in shipping and all the other B.S. that you have to endure. ItÔÇÖs a question of, ÔÇÿHow do I value my time at three in the morning when I have to talk to China?ÔÇÖÔÇëÔÇØ

As costs in China rise and owners look closely at the hassles of using factories 12,000 miles and 12 time zones away, many small companies have decided manufacturing overseas isnÔÇÖt worth the trouble. American production is ÔÇ£increasingly competitive,ÔÇØ says Harry Moser, founder of the Reshoring Initiative, a group of companies and trade associations trying to bring factory jobs back to the U.S. ÔÇ£In the last two years thereÔÇÖs been a dramatic increaseÔÇØ in the amount of work returning.

LightSaver executives no longer spend hours on the phone with ChinaPhotograph by Michael Schmelling for Bloomberg BusinessweekLightSaver executives no longer spend hours on the phone with China

An April poll of 259 U.S. contract manufacturersÔÇöwhich make goods for other companiesÔÇöshowed 40┬ápercent of respondents benefited this year from work previously done abroad. And nearly 80┬ápercent were optimistic about 2012 sales and profits, according to the survey by MFG.com, a website that helps companies find manufacturers. ÔÇ£A decade ago you just went to China. You didnÔÇÖt even look locally,ÔÇØ says Ted Fogliani, chief executive officer of Outsource Manufacturing, the San Diego company working with LightSaver. ÔÇ£Now people are trying to come back. Everyone knows theyÔÇÖre miserable.ÔÇØ

For LightSaver, the decision was simple. Neither of the founders has ever been to China, which made communicating with manufacturers difficult. Components that were shipped from the U.S. sometimes got stuck in customs for weeks. And Anderson had to spend hours on the phone to explain tweaks in the product. ÔÇ£If we have an issue in manufacturing, in America we can walk down to the plant floor,ÔÇØ Anderson says. ÔÇ£We canÔÇÖt do that in China.ÔÇØ Anderson says manufacturing in the U.S. is probably 2┬ápercent to 5┬ápercent cheaper once he takes into account the time and trouble of outsourcing production overseas.

Dana Olson makes a living convincing small manufacturers that it pays to produce domestically. About 10┬ápercent of the roughly 60┬ácompanies that his Minneapolis firm, Ecodev, has worked with have moved manufacturing to the U.S. or decided not to send it overseas, and another half-dozen are considering similar moves. ÔÇ£ThereÔÇÖs a growing sense, with the economy doing what itÔÇÖs doing, of U.S. companies wanting to produce in the United States,ÔÇØ says Olson. ÔÇ£ItÔÇÖs very important to them to have ÔÇÿMade in the U.S.A.ÔÇÖ on their label again.ÔÇØ

Since 2008, Ultra Green Packaging, one of OlsonÔÇÖs clients, has used manufacturers in China to make compostable plates and containers from wheat straw and other organic materials. By yearend, Ultra Green expects to start producing the bulk of its wares at a plant in North Dakota to cut freight costs and protect its intellectual property. ÔÇ£TheyÔÇÖre infamous over there for knocking [products] off,ÔÇØ says Phil Levin, chairman of the 10-employee company. ÔÇ£All anybody needs to do is find a different factory and make a mold.ÔÇØ

For Unilife (UNIS), moving production to the U.S. helped it win regulatory approval for an important product: prefilled syringes with retractable needles that make it almost impossible for medical personnel to accidentally stick themselves. Although the company used Chinese manufacturers for earlier offerings, syringes preloaded with medications are subject to stringent U.S. Food and Drug Administration rules. So in March┬á2011, Unilife began making its syringes at a $32┬ámillion, 165,000-square-foot plant it built in York, Pa. ÔÇ£The very thing in the U.S.A. that oftentimes we complain aboutÔÇöthe complexity of the rules and the regulationsÔÇöworks for us,ÔÇØ says CEO Alan Shortall. ÔÇ£FDA compliance is the main reason weÔÇÖre here.ÔÇØ

Even with strong Mandarin skills, Brian Bethke grew frustrated with manufacturing in China. The co-founder of Pigtronix, which makes pedals that create electric guitar sound effects, discovered that he couldnÔÇÖt adequately monitor quality at Chinese factories. The original idea for the company was to develop products in the U.S. and make them in China, where Bethke was living. But after several years of finding technical glitches in as many as 30┬ápercent of pedals, the company decided to move production to Port Jefferson, N.Y. At its small factory in a Long Island office park, the company can run multiple tests on its products and even has a guitarist play each of the 500 to 1,000 pedals it sells monthly before theyÔÇÖre packed and shipped.

U.S. production lets Pigtronix more extensively test its guitar pedalsPhotograph by William Mebane for Bloomberg BusinessweekU.S. production lets Pigtronix more extensively test its guitar pedals

PigtronixÔÇÖs move back, completed three years ago, has helped improve cash flow. While manufacturing pedals in the U.S. can cost anywhere from three to six times as much as it does in China, Bethke says Pigtronix benefits from not having capital tied up in products that spend weeks in transit and then pile up in inventory. ÔÇ£In China, you have high minimum quantities you have to order, so youÔÇÖre building a couple thousand of every guitar pedal,ÔÇØ Bethke says. ÔÇ£Your carrying costs start to get huge.ÔÇØ Today the company only makes those pedals itÔÇÖs confident it can sell quickly.

While goods for U.S. consumers are less likely to be made in China these days, overseas production may still make sense for companies that plan to target foreign markets. ÔÇ£What weÔÇÖre seeing is regionalization, buying stuff from manufacturers in the region where youÔÇÖre going to sell it,ÔÇØ says Michael Degen, CEO of Nortech Systems (NSYS), a contract manufacturer based in Wayzata, Minn., that has eight factories in the U.S. and one in Mexico. ÔÇ£ItÔÇÖs very noticeable.┬áÔǪ WeÔÇÖve seen movement in terms of manufacturing in country for country.ÔÇØ

The bottom line: Although manufacturing in China can cost a third what it does in American factories, small companies are bringing production back to the U.S.


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