Small Manufacturers Rethink ‘Made In China’
Rising wages and quality concerns are leading some to bring production back to the U.S.
Like scads of other small American companies, Simple Wishes, a Sacramento-based maker of breast-pump bras, has been having its products manufactured in China. But lately, co-owner Joy Kosak has had second thoughts. The company’s shipping costs went up 15 percent last year, and the wage gap between China and the U.S., though still large, has been narrowing. “We would love a made in the usa label,” muses Kosak, who founded Simple Wishes with her three sisters in 2009.
We’re witnessing a sea change in the way entrepreneurs think about manufacturing. Increasingly, China isn’t the bargain it once was, and making things in the U.S. seems less over-the-top expensive now. Like Simple Wishes, many small businesses that sell goods in the U.S. are rethinking whether manufacturing on the other side of the planet is worth it.
Across China, wages have been climbing 15 to 20 percent annually for the past four years, and the currency, the yuan, has begun to rise. Harold Sirkin, of The Boston Consulting Group, predicts that overall costs in the U.S. and China are likely to converge around 2015, ushering in a “renaissance” for U.S. manufacturing. Some of that shift is already under way: One-fourth of the more than 850 companies surveyed by MFG.com, an online manufacturing referral service, brought jobs to North America from low-cost countries in the last quarter of 2010.
Some mammoth companies have already taken the lead in this so-called reshoring, or on-shoring. Consumer-product giant Jarden is repatriating the making of its First Alert safety devices and its Miken carbon fiber baseball bats. NCR Corp. has moved some of the manufacturing of its ATMs from China to Columbus, Ga. As plants gear up stateside, they support jobs beyond their walls as they seek out new suppliers. “This could be a windfall for small companies,” notes Sirkin.
Stateside, many governments are luring businesses back. Many states, particularly in the South, have flexible labor laws and no additional minimum wage on top of the federal one. Other communities now offer companies tax concessions and financing. Start-up ECI Biotech, for example, considered outsourcing to China, but ultimately decided to make its diagnostic sensors in Worcester, Mass. Financial support from the city made manufacturing there cost-effective, and building in the U.S. may also provide ECI more intellectual-property protection for its devices, says founder Mitch Sanders.
Earphone maker Sleek Audio reached its tipping point last year. It had manufactured its earphones in Dongguan, China, for nearly five years. But the cost advantage of China’s low wages came apart in October 2009, after 10,000 poorly welded units also did. “We lost millions on that batch,” fumes cofounder Mark Krywko.
Smaller companies are especially vulnerable to quality issues like these, because a manufacturing agent assigned to address the problems might represent dozens of other companies and may give bigger firms a higher priority. Smaller firms are also more likely to face production delays, because overbooked factories favor the biggest employers. “If you can afford to pay an employee to be in China 24/7, fine it can work,” concludes Krywko. But for many small businesses, it becomes impossible.
John Higgins, CEO of Houston-based lighting manufacturer Neutex Advanced Energy Group, got tired of seeing messy glue jobs, twisted wires and missing screws on the lighting fixtures he was making in China. After noticing Starbucks and Juicy Couture stores near his plant sure signs that China’s middle class was growing Higgins knew the wage increases he had witnessed were only the beginning. “Then our American pride kicked in,” he says. “Let’s do it here!” About two years ago, Higgins shut down his Chinese manufacturing and started to set up a Houston facility that will employ more than 250 people beginning next year.
Sleek Audio and Neutex also found ways to hike productivity through automation and design. Krywko redesigned his earphones to require less than half the parts (he will continue to manufacturer lower-end models in China). With a machine Neutex is having designed in Europe, a task that once involved as many as 30 people will require fewer than 10, and Higgins will be able to increase his production volume fourfold.
The number of companies repatriating jobs remains a trickle, but Sirkin predicts the pace will pick up. Though China recently surpassed the U.S. as the world’s top goods producer (the two account for 20 and 19 percent of manufacturing output, respectively), Sirkin estimates that 10 percent of jobs lost to Asia could come back to the U.S., particularly among small companies with low-volume runs or where labor is a minor component of overall costs. The U.S. has 11.7 million manufacturing jobs, down from a peak of nearly 20 million in 1979. All the more reason companies are looking for ways to have their products stamped, sewn, molded or built back home.
Turns out, Simple Wishes isn’t ready to join that category just yet. The wages in California remain much higher than what Kosak pays in China, and she would have to at least double her price to manufacture her breast-pump bras here. “The reality is that no one would buy our product for $90 when competitors sell them for $35,” says Kosak. Instead, she’s researching Mexico, where wages are 25 percent higher than in China but still lower than in the U.S. “It’s a bummer,” she concludes.
NEUTEX™ President & CEO John Higgins is a featured source in a brand new article on Houston from Solve Climate News
Houston Stands Out for Clean Energy Companies Seeking New Home Base
By Maria Gallucci, SolveClimate New
Houston’s Texas-sized push to build a cleaner, more competitive economy is luring alternative energy businesses and giving the nation’s oil and gas capital an increasingly green tinge.
John Higgins, CEO of NEUTEX Advanced Energy Group™, said an extra-warm welcome from City Hall last year persuaded him to choose Houston to manufacture the firm’s energy-efficient LED lighting.
The development and construction company has been based in Houston for more than 20 years, but NeuTex was looking at cities across the country for its nascent lighting division after deciding to close most of its China-based operations, due partly to rising labor costs.
“Tax breaks weren’t real important to us,” Higgins told SolveClimate News. “We looked for a team in a city that would embrace energy efficiency and would embrace sustainable technology.”
Mayor Annise Parker’s office reached out to NeuTex and ensured it could support the firm by championing sustainable building initiatives and giving NeuTex visibility among developers and engineers.
“We thought that if we can be taken seriously in Houston, Texas, then we can be taken seriously anywhere in the world,” Higgins said.
In March, NeuTex began the demolition and reconstruction of a vacant facility to serve as its U.S.-based headquarters and manufacturing hub for lighting, which together will create at least 250 jobs in the next two years, Higgins said. He added that NeuTex took no incentives or tax benefits from the city for the project.
Higgins said he expects lighting to account for 90 percent of the firm’s revenues over the next year — up from just 25 percent today — while its main commercial construction division will shrink to 10 percent. The green shift could boost NeuTex’s revenue to $30 million in 2012, up from nearly $3 million last year.
Houston based NEUTEX Advanced Energy Group, Inc.™ (“NEUTEX” or the “Company”) parent company of NEUTEX Lighting™ producers of innovative, energy-efficient LED, Induction and wind/solar hybrid lighting applications, today announced that it has significantly strengthened its offerings to their energy cost and environmentally minded customers by establishing their own electric energy provider group; NEUTEX First™.
NEUTEX™ President and CEO John Higgins established this newest offering in the company’s continued efforts to offer the best, most energy conscious products and services. By combining NEUTEX Lighting’s™ advanced-technology, energy efficient LED lighting products with NEUTEX First’s™ offering of electric power provider choices, the company is poised to offer to their customers, all-inclusive energy-saving packages; something no competitor can.
Ever one to turn obstacles into opportunities, Mr. Higgins stated, “As we developed and recycled our 40,000 sq. foot company headquarters and LED manufacturing center in Houston, we recognized the difficulty in making an informed, affordable energy provider choice, especially on a commercial level, and as a result, we made the decision to leap into the energy market ourselves. NEUTEX First™ is the result of that challenge.
“As we completed our own energy audits for our own lighting needs we quickly realized that an uninformed energy provider choice will gives no control over pricing, which foolishly drives up costs.
“We realize that other business owners are in the same situation and that many of these are the same business owners who want a no frills energy efficient LED or Induction lighting system solution for their business that operates at 80% less energy consumption than standard lighting options. Combine an energy efficient lighting solution with a lower per-kilowatt electricity rate and you create a win-win for a customer”.
NEUTEX™ feels that NEUTEX First™ and their power solutions will give savvy electricity shoppers a better solution that brings together great prices and dependable service. They plan to begin offering their services to all US unregulated markets on July 1st.
Starting on July 1, 2011, they will offer to all customers in United States de-regulated power markets electricity packages that provide some of the most competitive rates around. From month-to-month to extended fixed-rate plans, they will offer customers a wide array of packages that will allow the customer to pick the best option for their business. Customers will also have the comfort of knowing that the same poles and wires that they’ve always had will continue delivering electricity to the business.
NEUTEX Advanced Energy Group™, Inc. President and CEO, John C. Higgins
Named Ernst & Young Entrepreneur Of The Year® 2011Gulf Coast Area Award Finalist
Houston, Texas, May 11, 2011 – NEUTEX Advanced Energy Group, Inc.™ today announced that President and CEO, John C. Higgins is an Ernst & Young Entrepreneur Of The Year® 2011 Gulf Coast Area Award finalist. According to Ernst & Young LLP, the awards program recognizes entrepreneurs who demonstrate excellence and extraordinary success in such areas as innovation, financial performance and personal commitment to their businesses and communities. John Higgins was selected as a finalist from nearly 50 nominations by a panel of independent judges. Award winners will be announced at a special gala event on Wednesday, June 22 at the Houston Intercontinental Hotel.
“I am so pleased to be a finalist amongst other entrepreneurs in the Gulf Coast area that are visionaries and job creators in their specialized fields. Entrepreneurs are often measured by the efforts and success of one person. Without the strength and entrepreneurial spirit of my teammates at NEUTEX™ my dreams of being a successful entrepreneur could not be realized.”
The Ernst & Young Entrepreneur Of The Year Program celebrates its 25th anniversary this year. The program has expanded to recognize business leaders in more than 140 cities and more than 50 countries throughout the world.
Regional award winners are eligible for consideration for the Entrepreneur Of The Year National Award. Award winners in several national categories, as well as the Entrepreneur Of The Year overall National Award winner, will be announced at the annual awards gala in Palm Springs, California, on November 12, 2011. The awards are the culminating event of the Ernst & Young Strategic Growth Forum®, the nation’s most prestigious gathering of high-growth, market-leading companies, which will be held November 9–13, 2011.
Founded and produced by Ernst & Young LLP, the Entrepreneur Of The Year Awards are pleased to have the Ewing Marion Kauffman Foundation as a national sponsor.
In the Gulf Coast Area, sponsors include Fullbright & Jaworski L.L.P., Lockton Companies, SAP, SolomonEdwardsGroup LLC, HFBE, Smart Business Magazine and Pierpont Communications.
About NEUTEX Advanced Energy Group, Inc.™
Founded in 2007, NEUTEX Advanced Energy Group, Inc.™ is the maker of the most advanced lighting products available. The use of key technologies; LED, Induction & Wind / Solar Hybrids feature unprecedented energy efficiency and quality. For more information about NEUTEX Lighting™ or any of the NEUTEX Advanced Energy Group of companies, visit their website at www.neutexlighting.com.
About Ernst & Young Entrepreneur Of The Year®
Ernst & Young Entrepreneur Of The Year® is the world’s most prestigious business award for entrepreneurs. The unique award makes a difference through the way it encourages entrepreneurial activity among those with potential, and recognizes the contribution of people who inspire others with their vision, leadership and achievement. As the first and only truly global award of its kind, Entrepreneur Of The Year celebrates those who are building and leading successful, growing and dynamic businesses, recognizing them through regional, national and global awards programs in more than 140 cities in more than 50 countries.
About the Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For more information about our organization, please visit www.ey.com.
NEUTEX Lighting’s™ Groundbreaking Ceremony and Mayor Parker’s visit to be featured on CW39’s “Going Green” Show! Saturday April 9 (12:00 pm) and Sunday April 10, 2011(10:00 am). We’ll be featured in the “Green News” segment. Click here for more details and showtimes!