Made in the U.S.A.’ may be staging comeback, but Who Will Work The Factory Floor?

“Be careful what you wish for, as you may get it”,  says the proverb.  Well, it looks like we are getting it, but are in danger of dropping the ball.

The signs are persistent; more and more U.S. manufacturers are bringing production back home.  In the recent months we have seen a fair amount of anecdotal evidence to substantiate this trend.  On Thursday, Boston Consulting Group  released a study, whose findings largely substantiate the “Made in the USA” comeback we have observed for some time.

Yet, those manufacturers who are now ramping up production in the U.S. find themselves dealing with a very unpleasant problem – shortage of qualified factory labor. And this is at the time when national unemployment is at 9% and unemployment among teenagers is closer to 25%.  Unfortunately, the problem is not easily solved as it seems to have fundamental causes.   Our educational system does not produce enough math and science graduates, and those who do earn technical degrees bypass factory floors and head for high-tech industries.  There are not enough retraining programs, incentives and public awareness messages to steer unemployed youth into manufacturing jobs. There is also a geographic mismatch and a lot of unemployed urbanites are not able to take advantage of the typically rural manufacturing opportunities.

To address this problem, simply putting out more math and science graduates will not be enough.  Our policy makers and educators must work closely with manufacturers, public relations and marketing personnel to develop a national initiative to recruit, train and retain into the ranks of American manufacturers. Some of the items, which should be implemented include:

  • Modified science and math curriculum offered in regular, not vocational middle and high schools,
  • A broad-based advertising and PR program geared at young people and carrying the message that manufacturing is “cool”,
  • Government incentives for college and retraining tuition akin those offered for service in the Military or the National Guard,
  • Funding all these programs through a combination of Private Public Partnership (PPP) efforts with majority of costs borne by the manufacturers, but with the government providing targeted tax breaks directly tied to the number of jobs filled.
  • Union leaderships must rethink their position and policies, as they brace for the new influx of fresh recruits. One of the reasons manufacturing left U.S. in the first place were high labor costs and low productivity, which resulted from the very comfortable and complacent environment, which was created by the unions as they grew more powerful and top heavy. Lean and competitive rather than bloated, top heavy and overprotective should be the guiding principles.

The quest for the creation of the new working class capable of competing in the 21st century must begin immediately as we risk to have our hard-earned comeback slip away.

Two articles below provide a comprehensive look at the subject. I hope you enjoy and welcome your comments and suggestions.

Made in the U.S.A.’ may be staging comeback

Study says American labor may be more cost-effective than China before decade’s end

Below:

Caterpillar earth moving equipment is ready for shipment from a facility in Elmhurst, Illinois. The company says it may produce more excavations domestically.

Image: Caterpillar earth moving equipment is displayed at Patten Industries in Elmhurst, Illinois.

Getty Images
By Nick Zieminski
updated 5/5/2011 MSNBC.com

NEW YORK — The “Made in the USA” label may be poised for a comeback, a new study argues.

The next few years will bring a wave of reinvestment by U.S. multinational manufacturers in their home base, as rising wages and a strong yuan currency make China a less attractive production center, the paper by the Boston Consulting Group predicts.

The study, published on Thursday, says U.S. reinvestment will accelerate as the United States becomes one of the cheapest locations for manufacturing in the developed world. If it came to fruition, such reinvestment could speed up a delicate economic recovery that has yet to gain much traction. There is evidence the trend has already started:

  • Caterpillar Inc. said last year it may produce construction excavators at U.S. facilities that are currently imported.
  • NCR Corp. brought back production of automatic teller machines to Georgia, creating 870 jobs.
  • Toymaker Wham-O moved production of Frisbees and Hula-Hoops from China and Mexico to the United States.

More such announcements are likely over the next year or two, BCG says, citing conversations with clients.

“If you work the math out using today’s numbers. you’d still say it’s a good idea to go to China,” said Hal Sirkin, a senior BCG partner and lead author of the study. “(But) around 2015, you get to a point of indifference between producing in the U.S. and producing in China.”

Wages in China are still a fraction of what U.S. workers earn. Direct pay and benefits for production workers in the United States are about $22 per hour, versus only about $2 in China, roughly 9 percent of the U.S. cost.

But that difference is expected to narrow, with the Chinese worker earning about 17 percent as much as his or her U.S. counterpart four years from now. Factoring in higher U.S. productivity rates, the weaker U.S. dollar and other factors, such as shipping costs, that difference could narrow further.

The study predicts China will remain a major global player — just less of an exporter to the United States.

China will still export to Europe, whose workers are less able to move for jobs than U.S. workers are. U.S. wage advantages could eventually reach the point that European automakers will export U.S.-made cars to Europe, the study said.

The appeal of a shorter supply chain and fewer headaches from issues like intellectual property will also help encourage jobs and production to come back to the United States, BCG said. Policy could also nudge manufacturers to make the move. High unemployment is driving state incentives to attract factories, while unions are becoming more flexible.

Still, the study’s thesis is based on assumptions that may not play out.

One is that supply and demand of labor in China are increasingly moving out of balance. Another is that demand from a growing Chinese middle class will raise costs, as factories shift to producing for domestic consumption and workers demand more pay to pay for goods that were out of reach before.

Also, the yuan’s rally could reverse. Since China first loosened restrictions on trading the yuan, its value has steadily strengthened from more than 8 yuan to the U.S. dollar in 2005 to fewer than 6.5 per dollar now.

The expected U.S. reinvestment, meanwhile, will affect some industries more than others.

Shoes or clothing are work-intensive and do not require highly skilled labor. But higher-value goods made in lower volumes, such as home appliances and construction equipment, are more likely to bear the “Made in the USA” label in coming years — especially if they are large and expensive to ship.

General Electric Co’s example supports the study’s contentions. GE’s appliance unit is in the middle of a four-year, $600 million plan to build up its manufacturing presence in Louisville, Kentucky, adding some 830 new jobs.

“The default has been to say: ‘Let’s put the next plant in China,'” Sirkin said. “We’re saying: ‘Sit back and think through your options.'”

Help Wanted on Factory Floor

By JAMES R. HAGERTY  The Wall Street Journal  May 6, 2011

U.S. manufacturing companies, long known for layoffs and shipping jobs overseas, now find themselves in a very different position: scrambling for scarce talent at home.

Large and small manufacturers of everything from machine tools to chemicals are scouring for potential hires in high schools, community colleges and the military. They are poaching from one another, retraining people who used to have white-collar jobs, and in some cases even hiring former prisoners who learned machinist skills behind bars.

Ross Mantle for the Wall Street JournalBill Schaltenbrand, 59, a 40-year veteran at Hamill, does his own math to double-check plans.

Even with unemployment near 9%, manufacturers are struggling to find enough skilled workers because of a confluence of three trends.

First, after falling for more than a decade, the number of U.S. manufacturing jobs is growing modestly, with manufacturers adding 25,000 workers in April, the seventh straight month of gains, according to payroll firm Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. The Labor Department’s jobs report on Friday is expected to show moderate employment growth in the overall economy.

Second, baby-boomer retirements are starting to sap factories of their most experienced workers. An estimated 2.7 million U.S. manufacturing employees, or nearly a quarter of the total, are 55 or older.

Third, the U.S. education system isn’t turning out enough people with the math and science skills needed to operate and repair sophisticated computer-controlled factory equipment, jobs that often pay $50,000 to $80,000 a year, plus benefits. Manufacturers say parents and guidance counselors discourage bright kids from even considering careers in manufacturing.

“We get people coming in here all the time who say, ‘I can weld,'” says Denis Gimbel, human-resources manager at Lehigh Heavy Forge Corp., of Bethlehem, Pa., whose products include parts for ships. “Well, my grandmother could weld.” He needs people who understand the intricacies of $1 million lathes and other metal-shaping equipment.

Manufacturers have anticipated for years that baby-boomer retirements would create difficulties. Among those who have tried to get ahead of the demographic curve—with mixed success—is Jeff Kelly, chief executive of Hamill Manufacturing Co., a family-owned company near Pittsburgh that cuts metal into parts for ships and machinery.

Hamill doesn’t have any button-pushing work. The 127-employee company is constantly resetting its mills and lathes to produce small numbers of parts to meet precise and ever-changing specifications. There are no long, routine production runs.

One morning in late April, Trent Thompson, a 20-year-old Hamill apprentice wearing shredded jeans and a black baseball cap, was assigned to drill three holes in a piece of carbon steel about the size and shape of a hockey puck. To make sure he was spacing the holes exactly right, he scrawled a triangle and some trigonometric calculations on a notepad. Even a tiny error would mean wasting about $400 of metal.

Ross Mantle for the Wall Street JournalTrent Thompson, 20 years old, is an apprentice at Hamill Manufacturing.

Factory

Factory

Ross Mantle for the Wall Street JournalMr. Thompson.

In another corner of the factory, Bill Schaltenbrand, 59, was cutting bigger, more complicated parts. A computer had worked out where he should drill and cut, but Mr. Schaltenbrand, a 40-year veteran at Hamill, does his own math to double-check the plans. Computers, he says, sometimes “punch out stupid stuff.” Part of Mr. Schaltenbrand’s skill is reading blueprints with myriad numbers and symbols that would baffle most people.

In its search for talent, Hamill works with nearby vocational schools—serving on advisory boards, donating equipment and providing guest lecturers. Mr. Kelly helps organize a program called BotsIQ in which high-school students learn to build fighting robots. On a recent Saturday evening, he handed out trophies after a robot dubbed Grim Reaper 3, resembling a bathroom scale with spinning metal blades, flipped a rival called Black Mamba and left it in a smoking heap.

Through its ties to area high schools, Hamill met Walter Gasper about five years ago. Mr. Gasper, whose father is a mechanic, had good grades in high school and took college-prep courses. He says a counselor tried to discourage him from vocational courses, but he took them anyway because he liked working with machinery. Hamill signed him as an apprentice when he was 17 and let him work part time while finishing high school.

Last June, Mr. Kelly beamed as he posed for a picture with Mr. Gasper and the first-prize trophy he won in a national competition in which apprentices displayed metal-working skills.

Three months later, Mr. Gasper bolted for a new job with a Cheswick, Pa., unit of Curtiss-WrightCorp., a much larger maker of pumps and generators that buys parts from Hamill. Curtiss-Wright offered him about 40% more pay than he was getting at Hamill. “I was just looking to further my career a little,” says Mr. Gasper, now 21. Though he has no college degree, his annual pay tops $55,000. Unlike many young adults, he has no college debt.

Hamill’s Mr. Kelly says he has raised wages 18% to 25% over the past two years or so, but still has lost about 10 workers in that period to Curtiss-Wright.

Greg Hempfling, a senior vice president at Curtiss-Wright, says he isn’t poaching but merely posting job offers. The pool of skilled manufacturing labor has been “decimated” in the Pittsburgh area, he says, and that has forced Curtiss-Wright to advertise for help as far away as Detroit and Buffalo, N.Y.

[FACTORY_p1]

Even some global giants are stretched to find enough qualified workers. At a U.S. division ofBayer AG that makes plastics and polyurethane, the average age of employees is about 52, says Gregory Babe, chief executive of the German company’s U.S. business. The skill shortage “is a real issue, and it’s going to get much worse,” he says.

Bayer has had particular trouble filling positions in such areas as chemical-process technology at its plastics plant in Baytown, Texas, near Houston. A decade ago, Mr. Babe says, a job opening typically would attract 100 applications. “These days I get about 10,” he says. After screening, Bayer often finds that only a couple are qualified. Some jobs have been open six to nine months.

“This place is five acres, and it’s three stories tall,” says Donny Simon, 55, who has worked in the plant since 1988. It takes time to understand how all the pipes, valves, pumps and feedstock tanks work together and how to avoid explosions or other accidents. Technicians need basic math and science for such tasks as calculating the rate at which dyes and stabilizing agents need to be added for specially ordered batches of plastics.

Because it can’t find enough candidates with relevant experience, Bayer this summer will for the first time hire interns to learn how to operate machinery at the Baytown plant. It plans to offer $18 to $23 an hour—unusually good pay for summer jobs—and to choose among students in “process technology” at local community colleges. Those who do well are likely to be offered permanent jobs.

Manufacturers are having trouble now partly because some of them stinted on recruitment and training when it was easier to find workers. Woodward Inc., a maker of parts for aircraft and power-generation equipment based in Fort Collins, Colo., for decades operated its own academy to train workers, but it closed it during a late-1990s cost-cutting drive. As a result, says Keith Korasick, who supervises manufacturing at Woodward’s Fort Collins plant, “we kind of lost our pipeline of skilled machinists and technicians.”

Now Woodward is sponsoring two dozen students at community colleges in Fort Collins and Rockford, Ill., the company’s other big U.S. manufacturing site. It pays their tuition and other costs for two-year programs in manufacturing skills. The students also are paid for 20 hours or so of work per week. To stay in the program, they need to maintain a grade-point average of at least 3.0.

Once the students finish those two-year degrees, Woodward aims to hire them for full-time manufacturing jobs starting at $25,000 to $48,000 a year.

FACTORY_jmp

FACTORY_jmp

As a high-school student in Fort Collins, Zach Wagner met Mr. Korasick and other guest lecturers from Woodward. Mr. Wagner, now 18, says he was interested in “computer stuff” and hadn’t thought much about manufacturing. Most of his friends were heading for four-year universities. He considered doing the same, but he worried about running up debts. So he accepted a community-college scholarship from Woodward. He aims eventually to get a degree in engineering while working at Woodward.

Manufacturers say the U.S. education system doesn’t produce enough students strong in math, science and engineering. About 5% of bachelor’s degrees awarded in the U.S. are in engineering, compared with an average of about 20% in Asia, according to the U.S. National Science Foundation. In the most recent comparison of math and science test scores of 15-year-old students by the Organization for Economic Cooperation and Development, American students trailed far behind those from China, Japan, South Korea, Canada and Germany.

While community colleges and technical schools struggle to keep up with demand for skilled workers, some prisons are trying to help. At California’s San Quentin prison, the machine shop offers training to prepare prisoners to pass exams demonstrating skills in such areas as operating computer-controlled lathes and mills. Some inmates get classes in calculus and trigonometry to help them work with machinery.

Swift-Cor Aerospace, a maker of airplane parts, has hired several former prisoners for its plants near Los Angeles and Wichita, Kan., and is happy with their work, says Cecilia Mauricio, human-resources manager.

The impending retirement of boomers isn’t a problem for everyone. Advanced Technology Services Inc. of Peoria, Ill., sees the trend as a huge opportunity. ATS provides maintenance and related services for manufacturers. Jeff Owens, president of the company, says he expects demand for those services to surge as manufacturers can’t find enough qualified employees and need to outsource more tasks to firms like ATS.

ATS now has about 2,400 employees in the U.S. and aims to reach 2,800 by year-end. Nearly a third of the people ATS hires come from military backgrounds, often with experience in fixing tanks or airplanes. Aside from knowing how to fix machines, the military vets are good at “being on time, being clean-cut,” Mr. Owens says.

ATS also helps pay for 40-week community-college training programs for some people it hopes to hire, and it funds scholarships for engineering students at universities. Two ATS managers spend nearly full time working with high schools, attending career days, conducting plant tours and meeting with guidance counselors.

“They’re out there selling the idea of working in a manufacturing plant—and trying to dispel the notion that it’s dark and dirty and unsafe and boring,” Mr. Owens says.

Henry Welsch, 36, is one of ATS’s converts. For the first 15 years of his adult life, he worked as an insurance agent and claims adjustor and as a sales manager for a moving company. But he decided a couple of years ago that he would rather have a job that was more secure and provided steady pay rather than unpredictable commission income.

One problem: He had never worked with tools or machinery. “I was starting from just nothing,” he says. He signed up for a nine-month manufacturing-skills course at Illinois Central College in East Peoria, Ill., and got a job at ATS in late 2009. That company assigned him to a CaterpillarInc. plant, where he repairs machinery.

It was a rough transition. He had to prove himself to his new colleagues, some of whom, he says, were “a little rough around the edges.” The job may lack glamour, Mr. Welsch says, but he thinks he made the right choice. “This is what I do in the daytime, and I go home and don’t have to think about it.”

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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