In October, the Boston Consulting Group predicted that rising costs of manufacturing in China would produce a renaissance in seven clusters of U.S. manufacturing, resulting in a cumulative gain of two to three million jobs nationwide. The seven industry clusters that could be affected by this "tipping point" are transportation goods, electrical equipment, furniture, plastics and rubber products, machinery, fabricated metal products and computers and electronics. According to BCG, manufacturing in rural, low-cost states will soon make more sense for many companies producing medium-volume products for which China's economies of scale do not outweigh rising production costs and related headaches. So what could this tipping point mean for Maine manufacturers?
Paul Tyson, general manager of Thermoformed Plastics in Biddeford, a manufacturer of plastic displays, packaging and other items, says he's currently talking with a company that is considering moving its production of energy chargers from China to Maine because of the higher expense and the stress of managing quality at an offshore production facility.
"Over the last year and a half, I've heard from a number of different clients about their shift away from China," says Tyson. He believes Maine manufacturers' pitch has to highlight reliable quality and productivity, because there are other locations with far lower wage costs.
"I'm not looking at this and saying, 'This is great, we're going to get all this new business,'" he says. "What's important to me is that we are in a global business and when a client looks at the cost of doing business in Maine, we are competitive."
Tyson and other Maine manufacturers familiar with the report say rumors of a tipping point have been making the industry rounds for months. According to the BCG study, wages and benefits at Chinese factories have increased 15% to 20% in China since 2000 in part because of worker strikes. By 2015, Chinese workers will still earn only a fraction of American workers — on average $4.50 per hour, about 17% of the average $26 per production hour in the United States — but this is significantly more compared with the 3% and 4% percent of U.S. wages Chinese workers made just a decade ago. And while China's productivity has increased faster than that of the United States — at an average bump of 10% per year since 2000 — the output per worker is predicted to only be 40% of U.S. productivity by 2015 because of our superior technology. Analysts say that's not enough to make up for the shrinking profit margin caused by the wage increases.
With productivity failing to outweigh wage increases, BCG believes other expenses from transportation, supply chain risks and international duties will tip the scales further in favor of low-cost U.S. states. By 2015, the consulting group predicts the savings from outsourcing to China will shrink to the single digits for many low-to-medium-volume products in which labor accounts for a small portion of the total costs. The report says states like South Carolina, Alabama and Tennessee — among the least expensive manufacturing sites in the industrialized world — could reap the benefits of the $100 billion output at stake.
Based on numbers alone, Maine's a tougher sell than its southern peers. Maine's average hourly wage in September for a non-management manufacturing employee was $20.41, according to preliminary data from the U.S. Bureau of Labor Statistics. That's about $1.50 higher than the national average and between $3 and $4 more per hour than the average in South Carolina, Alabama and Tennessee. And our productivity, while improving, isn't accelerated enough to make up for our higher price tag. According to the 2011 "Measures of Growth" report from the Maine Economic Growth Council, Maine's manufacturing productivity — or average production value per worker — was $101,634 in 2009, the most recent data available. That's 23% lower than the national average, placing Maine third among the six New England states. So, even if companies do turn their focus stateside, how is Maine going to attract their attention over lower-cost alternatives down South?
Lisa Martin, executive director of the Manufacturers Association of Maine, says one of the state's advantages is its cluster development in sectors like composites, aerospace and textiles. "If they're looking for a quality supply chain and a good work force," she says, "they will find that here."
Paul Meserve, vice president and general manager at Saunders Electronics, a circuit board manufacturer in South Portland, echoes Martin's strategy to advertise Maine's supply-chain advantages. He plans to solicit New England companies that are attracted to the prospect of manufacturing near Boston's IT corridor, Route 128.
To ramp up capacity in part because of tipping point predictions, Saunders Electronics purchased a $150,000 robotic assembly line this year that Meserve says will increase production capacity by 25% by the end of December. Then Meserve plans to track down new clients that have soured on China.
"It is an opportunity," says Meserve of the tipping point. "I think we're going to get a piece of it. I'm going to go looking for it."