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TN companies move back to the USA

2:50 PM, May 26, 2013   |    comments
Photo by Samuel M. Simpkins, The Tennessean
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By: G. Chambers Williams III, The Tennessean

Ten years ago, the executives of Smyrna-based Wearwell made a decision to concentrate on making their ergonomic floor-covering products in the United States, bucking the trend to send manufacturing to China or other low-cost foreign countries.

Despite struggling through the recession, Wearwell has seen its commitment pay off, and the company has been on a growth spurt, adding workers and running two or three shifts a day at its modern, 150,000-square-foot plant next to the Smyrna airport, said President and CEO Elliot Greenberg.

"Manufacturing in the United States made a lot of sense for us, because that's where most of our customers are," he said. "And because a lot of our products are custom-made, we felt like it was important to be close to our customers, who often want delivery the next day. We have about 100 employees now, and 80 percent of our products are made here in Smyrna."

Wearwell, whose customers include local manufacturers such as Nissan, Bridgestone and General Motors, as well as the new Amazon.com distribution centers, focuses on products that give workers who stand all day a cushioned floor to stand on, which helps combat fatigue and stress, Greenberg said.

Wearwell has manufactured outside the U.S. much more in the past than it does now, Greenberg said. About 20 percent of the company's manufacturing is abroad now - for instance, rubber mats are made in Sri Lanka, near where the rubber is grown, he said. "In some cases, it makes more sense to manufacture where the raw materials are sourced."

The company has joined a growing movement toward so-called "re-shoring," in which American companies have begun moving manufacturing back to the U.S. from abroad.

"Since the recession, more than 500,000 U.S. manufacturing jobs have been added," said Chad Moutray, chief economist for the Washington, D.C.-based National Association of Manufacturers.

"We continue to hear a lot of stories of new investments here," he said. "A lot of companies are looking at the U.S. that haven't in the past."

In Tennessee, durable-goods manufacturing jobs increased by 17,800 from 2010 (the recession's low point) to 2012, said David Penn, an economist at Middle Tennessee State University who tracks Tennessee manufacturing.

"Most of this was because of gains in transportation-equipment manufacturing (up 13,100), with much-smaller increases from fabricated metals (up 1,400) and electrical equipment (up 1,000), and nonmetallic mineral products (up 1,100)," he said.

"Companies do have to compare cost benefits of being in the United States to being somewhere else," Penn said. "No place is ideal. But it's turning more positive for the U.S. even though our labor costs are higher. Our productivity is much higher, and our labor costs have not been increasing like they have been in the Far East, where workers are demanding better working conditions and higher pay."

The reasons companies give for bringing manufacturing back to the U.S. include a desire to have more control over their products, especially quality and shipping, said James Soto, president and CEO of Industrial Strength Marketing, a Nashville consulting firm that focuses on small- and mid-size manufacturers.

Success stories like Wearwell's are convincing other manufacturers -including foreign-based companies - that producing in the United States makes good business sense, and that it can be done efficiently and profitably even if worker wages are higher here, Soto said.

"Absolutely, these companies are finding that they can be profitable manufacturing here," he said. "Factors such as labor efficiencies, decreased overhead, quality, lower energy costs, safety and working conditions are starting to add up and make U.S. production attractive to a lot of industries."

That's the theory behind the move by the Oreck family to reclaim the vacuum cleaner and home-products company it founded, and keep its headquarters in Nashville and its main manufacturing facility in Cookeville.

Former CEO Tom Oreck, whose father, David Oreck, started the company in 1963, said the family's goal is to " get the company back to its roots so it can be run based on family values, with a focus on U.S. manufacturing and a U.S. workforce."

Oreck Corp. filed for Chapter 11 bankruptcy reorganization in Nashville on May 6, and a week later the Oreck family made a $22 million bid to buy the company through the bankruptcy process. Other offers will be considered, but the family is confident it can once again take control of the company, which passed out of the Orecks' hands about six years ago.

"We are absolutely convinced that manufacturing our products in the U.S., and specifically in Tennessee, is the right choice for Oreck," Tom Oreck said. "We have the ability to make high-quality products in Cookeville and be competitive. We can outshine foreign-built competitors in quality, not to mention other advantages such as speed-to-market and flexibility."

Oreck said he's a big proponent of U.S. manufacturing in general.

"We can and should be succeeding in this and lots of other industries in the United States because of the quality of work we can produce in this country," he said.

Besides quality and the advantages of logistics and flexibility, U.S. manufacturing is getting a boost from increasing labor costs in China, Soto said.

"A lot of our clients are now balancing their production capacity, and as early as 2015, we may have a cost balance with China," he said. "Economists are projecting Chinese labor to go up 60 percent this year, and the costs of shipping a container (from China) have doubled."

American manufacturers, especially since the recession, "have generally become a lot more lean, and have learned to do a lot more with less, which makes them more competitive on a global scale," Moutray said.

Energy is a big factor in the re-shoring movement, he said.

"With the explosion of shale exploration, natural gas prices have fallen sharply," he said. "That helps lower manufacturing costs for plastics and chemicals in particular, but all manufacturers use a lot of energy - they consume 30 percent of our U.S. energy production. We're seeing a lot of increased investment because of the energy advantage."

But quality also is a big factor, Moutray said.

"Many companies have had to pull manufacturing closer to home to monitor quality a little better," he said. "That makes the U.S. slightly more attractive when it comes to where you choose to locate your production."

Transportation costs are a huge expense, particularly when shipments have to come from the Far East, Moutray said.

"Vacuum cleaners are heavy, and if they're made abroad, you have to ship them by boat," he said. "As fuel and transportation costs have risen, that's something else in our favor."

Currency exchange rates make a difference in a lot of industries, the experts said.

That's one reason the Japanese automaker Nissan, whose Americas operations are based in Franklin, has pledged to move enough vehicle assembly to North America to ensure that at least 80 percent of its cars and trucks that are sold here are made here.

Another important consideration is social responsibility, Penn said, particularly in light of the recent tragedy in Bangladesh, where a factory collapse killed more than 1,000 textile workers. Some companies now are trying to make sure that workers who make their products abroad have safe environments, Penn said.

"At some point, these low-cost manufacturers are going to run out of places to produce," he said. "Even the lowest-cost producers require some minimum level of skill and security. So right now, the prospects for manufacturing in the United States are as bright as they've been in a long time, well before the recession."

There are some challenges remaining, though, Moutray said.

"We have the highest corporate tax rates in the world, and our regulatory environment is not seen as business-friendly," he said. "Our legal system scares people, particularly in the area of product liability.

"When you look at non-labor costs, production in the U.S. is 20 percent higher, mostly because of taxes. We at the National Association of Manufacturers continue to push for programs that reduce those issues."

And some states, such as Tennessee, "are obviously better at focusing on pro-growth strategies than others," he said. "States compete for where manufacturers are going to locate, and some states do a better job."

Also a benefit to U.S. manufacturers is a feeling both here and abroad that American products are superior to those made elsewhere, Wearwell's Greenberg said.

"People like buying American," he said. "They're tired of Chinese products."

Contact Tennessean business writer G. Chambers Williams III at 615-259-8076 or cwilliams1@tennessean.com.

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