Outsourcing May Be Going Out of Style
Thursday, May 27, 2010
SUZANNE PRATT: The U.S. has lost roughly six million manufacturing jobs in the last decade. Much of that work has gone to China where labor is cheaper, but some American factories are having a change of heart when it comes to outsourcing. Diane Eastabrook takes us to an Illinois plant now making all of its products in America and creating new jobs here too.
DIANE EASTABROOK NIGHTLY BUSINESS REPORT CORRESPONDENT: Die Casting is a process using molten metal to make parts. It is a dying art in the U.S. but not at Peerless Industries. The company makes television wall mounts at this plant in northern Illinois. Die casting and some other work used to be outsourced to China. The factory recently brought that work back in house. As a result, peerless hired more than 100 new workers, including 53 year old supervisor Joe Dolack. He thought he`d left die casting for good three years ago.
JOE DOLACK, SUPERVISOR, PEERLESS INDUSTRIES: When we shut down the last plant I didn`t think there was a chance of finding another job, at least in the Chicago land area.
EASTABROOK: Peerless sent about 30 percent of its production to China a decade ago because labor there is cheaper. But the company says what it saved in wages, it spent on additional inventory. Peerless customers typically want orders filled in a few days. But it often took several weeks to get parts from China. So the company had to keep excess product on hand and that got expensive. Company President and Chief Operating Officer Michael Campagna says there were also concerns about intellectual property and quality.
MICHAEL CAMPAGNA, PRESIDENT & COO, PEERLESS INDUSTRIES: Going to China steered us into a direction of us not being a manufacturer as much as we were. And we wanted to control, you know, our destiny and our quality and our products and our designs. So we made the strategic decision to bring it back to the U.S.
EASTABROOK: For Peerless this turned out to be the perfect time to move all of its manufacturing back to the United States. The auto industry has shed thousands of jobs so it was easy to find skilled factory workers. On top of that, the company was able to get equipment on the cheap.
CAMPAGNA: This here is a 175 ton Cincinnati press brake. This machine typically would go for about $150,000 and we were able actually to get it for $70,000 at an auction.
EASTABROOK: Bargain basement real estate prices also helped Peerless move its growing workforce into a bigger and newer facility. Morningstar market analyst Paul Larsen says idled manufacturing capacity in the U.S., rising labor costs in China and higher transportation costs are making some factories think twice about outsourcing work to China. The country`s currency is also becoming a concern.
PAUL LARSEN, MARKET STRATEGIST, MORNINGSTAR: With the peg to the dollar, companies really don`t have to worry too much about currency fluctuations. That`s not necessarily a risk. But looking forward, if we do lose that peg, that is something companies are definitely going to have to pay attention to. It is a potential risk factor.
EASTABROOK: If demand stays strong for its TV mounts, Peerless might hire up to 15 more workers by the end of the year. The company thinks it is proof manufacturing can survive and thrive in the U.S. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Aurora, Illinois.