Falling dollar lures some manufacturing back from abroad. Companies find it is cheaper - and easier - to produce in the US
To those lamenting what they feared was the imminent extinction of the label ``Made in USA,'' take heart: The march of manufacturing to overseas locations is slowing - and some companies are bringing production back to the United States. The fall in value of the US dollar against other currencies is a major reason for the renewed interest in domestic manufacturing, but other factors are involved as well.
Companies are finding that low labor costs in some foreign countries, often the original draw, are sometimes offset by other costs, such as shipping, frequent or extended overseas business trips by company managers, and increased inventory time.
In addition, many companies are finding that quality control and response time on product innovations or redesign have suffered as manufacturing has moved away from design and engineering sites. (Falling dollar helps US close its trade gap, Page 16, but Japanese exporters remain calm, Page 7.)
``American firms are clearly cutting back on establishing new production facilities abroad,'' says Jerry Jasinowski, executive vice-president and chief economist for the National Association of Manufacturers in Washington. ``All indications are they intend to increase their proportion of production at home over the next few years.''
That view is backed up by a number of specific examples:
Next year Tandy Corporation will return production of its Color Computer 3, now being done in South Korea, to Tandy's home base in Fort Worth, Texas. ``We're predicting a 7 percent savings,'' says Robert McClure, president of Tandy Electronics, the corporation's manufacturing branch. ``Cost was the bottom line, and the numbers told us [the move] made sense.''
Over the summer, Innovative Controls Inc., a manufacturer of security and decorative lighting, moved its manufacturing from Taiwan back to the company's home in Houston.
The dollar's fall against Taiwan's currency, the won, was part of the reason for the repatriation, which company officials say could lead to savings of as much as 20 percent.
``We'll also have better management control,'' says Claude Denham, Innovative's chief operating officer for manufacturing. ``When you're making changes in design, it's hard to transmit that information over that distance.''
Quality control was also an important factor in Lionel Trains' decision to bring its toy-train manufacturing back to Detroit from Tijuana, Mexico.
General Electric Company this year opted to manufacture television sets in Bloomington, Ind., rather than renew its contract with a Japanese company.
The increased interest in US manufacturing also showed up in an annual survey by Boston University's School of Management. This year about a third of 207 companies surveyed said they expected to increase US production, compared with 19 percent last year and 12 percent in 1984.
``It's a reversal of the tide,'' says Jeffrey Miller, professor of operations at BU's School of Management and director of the school's Manufacturing Roundtable, a research center for manufacturing management and strategy. ``We expect the movement to pick up steam next year.''
Yet even though a stronger manufacturing sector is good news for the US economy, economists are quick to add that there will be no return to the days when the preponderance of manufactured products available to American consumers were made by their compatriots. In addition, many of the products ``made'' here will actually be made up increasingly of foreign parts.
What is happening, economists say, is a continued reordering and adjusting of what has become a world economy.
``Over the next five to 10 years, we're going to see a real mishmash,'' says Bernard Weinstein, director of the Center for Enterprising at Southern Methodist University.
``There will be some return of business to the US, but we're also going to see more foreign companies producing here, and more production sharing,'' with parts from many different sites around the world being used for assembly in various locations.
In many cases, companies will continue to do the most labor-intensive work abroad. Besides that, US companies expecting to sell overseas will continue to branch out into foreign production to better tap foreign markets.
As an example, Houston-based Compaq Computers recently began producing printed circuit boards in Singapore and this month will open a full personal computer production facility in Scotland - geared toward meeting the European market.
Production of parts and components is still moving overseas faster than it is coming to the US. Mr. Jasinowski notes that foreign purchases of parts and materials make up about one-third of US imports. ``That's here to stay,'' he says.
Professor Miller of Boston University adds that some sectors, such as machine tools and some computer components, have ``lost so much ground'' in this country that they ``hardly have a home to return to.''
US orders of American-made machine tools have picked up in the past two months as a result of the weakened dollar. Earlier in the year, the industry had reported a slump as a result of growing competition from abroad.
Often what is coming back home is assembly - and usually to plants that are more automated than those abandoned years ago.
``Companies are coming back to a much more efficient production process,'' Miller says. ``A computer that before required a person putting 30 chips on a board might only require one chip now, and it will be put in by a machine.''
As a result, economists say the return to US production is unlikely to produce great leaps in manufacturing employment.
Tandy is expecting to add at least 150 jobs in Fort Worth for production of the Color Computer 3, while Innovative Controls' move has meant a similar number of new jobs for Houston.
``It's good news that some people are going to find work that wasn't there a year ago,'' Jasinowski says. ``But no one should expect a large increase in manufacturing jobs. That won't be the case.''