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Manufacturing Buzz Tempered by Challenges from China and Mexico

by Laurie Harbour

Harbour Results, Inc.

The buzz today for manufacturing is exciting. From large companies moving critical manufacturing operations back to the US to universities starting new programs for manufacturing to companies that are growing and adding employees, the manufacturing industry is booming in the US.

From our perspective, there is no better time for US manufacturing than the next few years. During a recent trip to China, where we visited 16 plastics processors and mold builders, the message was clear: China is losing its labor advantage. Prices are going up for parts and tools, and it is more difficult for these companies to sell to the US. Companies in the US are becoming more competitive and wages are unchanged. These ingredients make for the growth opportunities for small US manufacturers.

Although these facts are clear, there are two words of caution for US plastics processors. The first is that the Chinese are very hungry to maintain their manufacturing growth. Throughout our trip, it was stressed that even in light of wage increases, the Chinese will move aggressively to improve their businesses and remain competitive. Every plant visited outlined plans to improve throughput and drive efficiency in engineering and on the floor. You can bet that China will make significant progress in the next two years, allowing the country to remain competitive.

The second word of caution is illustrated by a look to the south. Mexico is booming in manufacturing, and the country is very anxious to regain some of the strength it had before manufacturers moved to China. Some of the largest US manufacturers that built operations in China are moving the business back to the US or Mexico because they cannot get adequate program management support for the complex parts that they are producing. Mexico is a low-cost option for these suppliers today. Mexican wage rates already are lower than Chinese, and the gap will only continue to grow. Mexico has been graduating greater than 90,000 engineers each year, providing the technical capability needed for these new or growing operations.

There has been $7.8 billion invested by automotive OEMs in Mexico in the last two years, and this doesn’t even count the suppliers that support them. Safety and other levels of manufacturing maturity still are concerns for Mexico, but many companies are being asked to support this market and improvement is happening in these facilities.

Will the US manufacturing base continue to push itself to get better in business today, or have we forgotten about the big recession? Are higher profits and strong utilization allowing companies to turn their backs on continuous improvement, or is the push stronger than ever?

These questions are critical. Now is the time to seize market share lost over the years to lower labor cost countries by leveraging the strength and technical capability of US manufacturing.

Combining operational and strategic advisory expertise with industry analysis and thought leadership, Harbour Results delivers results that impact the bottom line. The company specializes in manufacturing, production operations and asset intensive industries, as well as a number of manufacturing processes, including stamping, tooling, precision machining and plastics. For more information, visit www.harbourresults.com.