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For some companies, ‘reshoring’ jobs gains appeal

This news story was published on August 8, 2012.
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By Dee DePass, Star Tribune (Minneapolis) –

MINNEAPOLIS — Two years ago, Calibur11 in Duluth, Minn., did what any other cash-strapped manufacturer looking to prune costs would do: Turn to China.

But the maker of game console cases is happily shifting its manufacturing operations back to the United States, discovering that doing business overseas was more trouble than it was worth. One supplier lost the molds for the company’s decorative shells while another demanded a bribe. Quality problems abounded.

(PHOTO: Awilda Isaac, left, works on a printer being assembled at Datacard Co. in Minnetonka, Minnesota, July 19, 2012. The company, which recently moved a production line from a plant in Malaysia to Minnetonka, is among several in the state that have moved manufacturing operations back to the States.)

“We just kind of got kicked right in the teeth dealing with China. It wasn’t any fun by any means. But it helped us learn to bring stuff back to the United States,” said Calibur11 owner Coy Christmas.

The hassle of operating abroad has triggered some companies to move production stateside, a move called “reshoring” by some. Coming home not only bolsters the speed, quality and simplicity of doing business, it’s also more economical than it used to be. Average wages in China have jumped 10 to 25 percent a year, hitting $4 to $6 an hour in some plants. Add in shipping and high fuel costs, and offshore manufacturing is no longer such a bargain.

The return of offshore production to America has emerged as a surprising silver lining in the U.S. economic recovery. The government doesn’t track corporate reshoring efforts, but experts say they are hearing of more companies bringing work back to the States.

“Lots of very encouraging anecdotes and obviously the more of that we see, the better off we all are,” said Alan Tonelson, researcher for the U.S. Industry and Business Council.

Since 2002, about 3.5 million manufacturing jobs have been lost nationwide. Returning jobs could create opportunities for thousands of U.S. workers.

Mark Phillips, commissioner of the Minnesota Department of Employment and Economic Development, said companies that have moved jobs back to the U.S., such as Calibur11 and 3M Co., have different reasons for the change. But all have discovered that operating in China, Mexico, Poland and other countries is not always rosy.

“When you are dealing across the ocean, there are logistical issues and language issues,” Phillips said. “It’s not perfect (overseas).”

Christmas called Calibur11’s experience in China a nightmare, with one vendor losing $700,000 in tooling equipment and another demanding a $150,000 “fee” to release his product.

“And then we found out our product was being sold on the black market. It’s been a horror story,” Christmas said. The company, which makes cases for popular consoles such as the Xbox 360, will now add a few employees in Duluth and many more in Chicago, where it plans to hire contractors to handle molding, assembling and packaging.

Ryan Kanne, director of the U.S. Commercial Service Office in Minneapolis, said the obstacles overseas are rising and many companies are bringing manufacturing back because of quality concerns. While it is sometimes cheaper to do business abroad, companies can keep a tighter rein on how products are made if manufacturing is done in the States.

“Some were subsidiaries (overseas) while others were contract manufacturing, but (companies) are bringing it back to the U.S. for quality control,” Kanne said.

Darlene Miller, owner of Permac Industries, a high-precision machine shop based in Burnsville, Minn., said her company always had quality issues in China. In 2006, she hired a Chinese contractor to make machine blades with exacting specs. But each shipment turned up flawed, with some blades not uniform, made of the wrong material, or falsely labeled “certified.” What complicated matters is that she had to buy a year’s worth of blades at a time.

Miller spent thousands on an outside testing lab, but was at her wit’s end after three years. “We found a Wisconsin company to make the blades. And without the shipping, testing and reject costs, they actually beat the price in China,” she said.

For Dan Shimek, owner of the Outdoor GreatRoom Co. in Eagan, Minn., it became too inefficient to lean on offshoring. Shimek used to buy all his wooden pergolas from China and fiberglass fire pits and pergolas from India, but minor problems on hardware orders created major issues because reshipping took six weeks. And sometimes reorders on a hot product arrived too late, causing him to miss an entire season’s worth of sales.

“The impact, for sure, is tens of thousands of dollars. And the impact to cash flow for a small business can be even more dramatic than that,” Shimek said.

Today, his company makes most of its firepit and grill tables in Eagan or orders from Minnesota firms. The change, carried out in the past two years, helped Shimek become more nimble and has added about a dozen jobs to Minnesota’s economy, either at his site or at contractors.

Some economists say reshoring will continue to add U.S. jobs, but others, including Tonelson, worry that the reshoring trend could remain largely anecdotal. “I think the offshoring craze is still going on,” he said.

Certainly conglomerates like 3M Co. continue to operate globally. But even it has brought divisions home, when it has made sense. The Maplewood, Minn.-based company said it consolidated production of its Littmann stethoscope from 14 domestic and foreign contractors to just one 3M factory in Columbia, Mo., a move that will improve efficiency for its operations.

“What we are doing is trying to shorten the supply chain,” said 3M spokeswoman Jackie Berry. “We were making pieces around the world and then consolidated, so our supply cycle fell to 50 days from 165 days.”

Calibur11’s Christmas is expecting to increase its business. The company made and sold $4.5 million worth of gaming cases last year, and this year it will make $5 million to $8 million “and we will do it right here in the United States,” Christmas said.

“I’m pumped up,” Christmas said. “I’m looking forward to bringing us back to the United States.”

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