The Economics of "Buy American"
American manufacturing, especially in our industry, is sort of a riddle. The economic advantage gained by importing should make stateside production impossible, an easy fact driven by the math of lower production costs and profit-by-volume. Yet this is anything but the case.
American manufacturing is not only able to defy the economics of scale, it's doing so in places and markets that it should have no business competing. From T-shirts to stickers, some U.S. manufacturers have managed to beat the presumed-unbeatable question of "Can you go under the importer's margins or not?"
Is manufacturing less of a numbers game than people think? Or are there just different rules for success than what's assumed? How are these companies able to succeed where it should be impossible, and most importantly, what can you learn from them and apply to your own business?
Creativity: The Main Differentiator?
The main line of thought on how American manufacturing companies are able to compete with importers is that U.S. manufacturing is faster, safer and more nimble. While this is likely true to a degree, it can't be the only reason. After all, there are importers who can match these qualities in varying or superior degrees, so there have to be other elements driving the success of American manufacturers.
An idea worth considering is that it's creativity, not service alone, that causes many American companies to thrive. Many of the companies interviewed for this piece enjoy positions as creative leaders in their product categories, and have managed to successfully get their items desired for their cutting-edge and captivating designs (see American Apparel, Hampden Corporation). It makes sense, considering that having new, beautiful or innovative items that are also exclusive is a powerful buying motivator that operates outside the realm of the economies of scale, making it a sales element unaffected by importers' price advantages.
Ray Hughes, distributor relations for American Apparel, Los Angeles, explained that one of American Apparel's main competitive advantages has been its ability to be a fashion leader in the wholesale apparel industry, consistently providing new and appealing designs that buyers cannot get elsewhere. David Morrison, president of Bruce Fox Inc., New Albany, Ind., expressed a similar sentiment. "We work very hard at being competitive and outdoing our competition based on our designs and quality," he said.
Creative advantage can extend past appearance alone. American manufacturers like Vonco Products and Finn Graphics have designed either new (such as Vonco's Thundersticks, the now-popular noisemaker sticks) or innovative (such as Finn's adhesive calendars or pinless noteboards) items not immediately available elsewhere and therefore give a similar competitive advantage immune to the weight of outsourcing.
Lesson Learned: Exclusivity can defy even the strongest and most persistent market pressures. Providing new or the most compelling products may be helpful in overturning a client's budget limitations.
The Other Side Of Margins
Creativity can be a competitive tool enough, but it can offer an additional advantage: High margins per item. Foreign labor can undercut and otherwise steamroll American manufacturing, especially at high volumes, but the opposite is also true: High-quality, creative pieces can leave importers with no ability to compete. This creative strength is particularly relevant on items that would that would be considered prestige or art pieces: something like a custom-designed crystal award, a jewelry piece or high-fashion apparel.
High-quality "art" pieces make margins work for American manufacturers by letting them be tilted in their favor. "By creating a product that is actually a higher value, a higher quality product, it allows us to sell a product that is much higher priced," said Hughes. He explained that this higher margin per item allows American Apparel and its distributor partners to make more per shirt, making the company an appealing choice as an apparel source (because of American Apparel's careful branding and reputation for quality, as well as their retail presence where many basics are sold for $15 to $20, there is a lot of room for end-buyer markup on a $5 shirt).
The other side of margin competition, order volume, is another area where the economies of scale can skew in American manufacturing's favor. At high order numbers, say something like 20,000 drawstring backpacks, the value of going overseas is obvious. Even with a marginal price difference per unit, the saving would be substantial. Slide the volume of items in the other direction however, like with an order for three wristwatches for a years-of-service award, and American manufacturing becomes more competitive. Quality and the appeal of the item become the differentiating factors, rather then price. Combined with their generally better customer service, customization options and lower shipping costs, American manufacturers that focus on high-quality, low-volume orders can easily compete with their overseas peers (possibly a reason that manufacturers of awards and prestige jewelry like watches, are easier to find stateside, compared to pens or drinkware).
Lesson Learned: American-made does not have to mean more expensive, at least for your business. Items with a high perceived value should allow you to pass the increased expense on to your client.
A third influence on American manufacturers is the availability of skilled labor. For certain items, it seems the appropriate workforce simply doesn't exist stateside. In a recent New York Times Article, "How the U.S. Lost Out on iPhone Work," computer giant Apple, which reportedly uses over 700,000 contractor employees overseas, responded to the question as to why it didn't keep its manufacturing stateside. Quoted from the article, it states:
"Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple's executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company's analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States."
Apple is not alone in citing America's lack of certain skilled labor. Technical gaps are being felt across many industries in the country, not just electronics. "So much of the American workforce that used to be on the sewing side is gone," said Hughes. "We don't have the skilled laborers like we used to have," he said. "We're fortunate to be here in Southern California. We've had to do a lot of training and things like that, but we've found a lot of skilled sewers and people that have a really great work ethic."
"Years ago, back in the Carolinas and the South, there used to be an incredible sewing talent back there," said Hughes. "Once all that sewing starting getting sent overseas, those people either aged out, or they've gone to other projects. All of a sudden South Carolina brings in BMW or Mercedes or whoever, and there are other jobs that have opened up that those people have moved to," he explained. "So those jobs, that skill set, it's just not there anymore."
It's not applicable to all industries, but for manufacturing that requires a lot of human manipulation, such as sewing a T-shirt or assembling an electronic item, this shift in the labor force partially explains why it's so rare to find American-made items in certain product categories while others that are simpler are relatively common.
Lesson Learned: Some products will be painfully hard to find stateside. If you have a client insistent on U.S. manufacturing, be prepared to explain that certain products may simply not be available.