Adopting a Made in the U.S.A. Strategy

Ask the questions you need answers to in adopting a domestic footprint

‘What is your U.S. footprint? What are your capabilities? What can you do from a domestic capacity standpoint? What lessons did you learn in your U.S. site selection process? ’

Such questions come with the journey of adopting a “Made in the U.S.A.” strategy. But as companies today continuously reconsider expanding their U.S.-based operations, they also look at the federal and state levels to weigh the value of the “buzz” that the manufacturing topic received in the supply chain already to understand what they need to be prepared for; and decide if bringing their production to the U.S. from overseas is the right move for them. And one thing is clear: everyone has the best interests for manufacturing in mind.

“At the federal level, the one thing that is really apparent is that there is no single point of contact,” explained Tim Seitz, Senior Vice President, Tax & Trade, Flextronics International Ltd. “There are a lot of different people at the government level and all of them have the best interests in manufacturing in mind—everybody is very interested in helping the manufacturing sector. They recognize that something is happening and everybody is really trying to understand what is driving this so they can identify what they can do to facilitate it.”

And while the U.S. manufacturing growth is still in its early stages, the vested interest it received at the federal and state levels is clear and will only continue.

We saw evidence of this last year when President Barack Obama visited Master Lock Co.’s site in Milwaukee, Wis. to recognize the manufacturer’s work in bringing jobs back to America. We also heard it in his 2013 State of the Union address, in which he referenced the manufacturing innovation institute in Youngstown, Ohio and plans to create more such “manufacturing hubs.” The U.S. Department of Commerce’s SelectUSA Initiative, established in 2011 to grow and invest in the U.S. economy, offers a range of incentives and federal funding for new and existing businesses to grow their U.S. footprint—including The Hollings Manufacturing Extension Partnership (MEP) formed to help serve small-and medium-sized manufacturing clients.

“Every country has its own bureaucracy and red tape and federal regulations,” explained Seitz. “When you go into such countries as China, Malaysia and Singapore as a company and you want to set up a facility, you have a single point of contact that you can go to with any issues that come up when you are building a facility; and to coordinate all the permitting that needs to be done. With Select USA, the U.S. government is focused on adopting a single point of contact type of regime in which they are going to have somebody available to us to do that—and we’re really excited about that.”

Is this real?

Simply put, the answer to the question is ‘yes, while it is still in its initial phase, the U.S. manufacturing regrowth is real.’ In the case of Singapore-headquartered electronics manufacturing services (EMS) provider Flextronics International, the company already spent in the neighborhood of $125 million between its operations in Plano, Texas and San Jose, Calif., at approximately one million square feet of space and 9,000 employees already, according to Ronald Tarter, Senior Vice President and General Manager for Flextronics. Furthermore, it is in discussions of expanding on the East coast as well.

And with such factors to consider as increasing wage rates in China, quality of product, IP protection and speed to market, companies must also examine the regional model of manufacturing, as a number of companies are taking an open-minded approach to landed cost.

“The bigger and the bulkier the product, the more likely it is to be made near the end customer because of the cost of getting it to where it needs to be,” explained Jonathan Hoak, Senior Vice President and General Counsel for Flextronics. “In talking about Made in the USA products, we’re mainly talking about products that would be made for the end user in the U.S. And that is really important because our market is still four times larger than any other market.”

But while the opportunity that a regrowth in manufacturing has the potential to bring to the U.S., it is vital that “we don’t underestimate the competition,” Flextronics’s Seitz described, confirming that “China is pursuing automation of the production facilities every bit as quickly as the U.S.”

“Yes, China may lose some jobs that are going back to the U.S., but as their middle class continues to expand, that may well offset this,” said Hoak. “So it may not even be a negative loss of jobs for China. But it is certainly something that we know firsthand that they are very focused on in China.”

In meeting with several senior level officials in the Chinese government, Flextronics’ Chief Executive Officer Mike McNamara discussed Made in the USA, to which the country expressed concern over the domestic initiative.

“The Chinese government wanted to know ‘what can we do so we don’t lose the competitive advantage? We understand labor arbitrage is going away—but what else can we do?’” Hoak continued. “The tax, the permitting, the single point of contact—those are all also important factors, not only for Flextronics but for any company that is looking to do manufacturing.”

In gaining leverage to the U.S. industry situation, the manufacturer also met with the offices of Senator Burr (NC), Senator Hagan (NC), Senator Graham (SC), Congressman McCaul (TX) and Congressman Honda (CA); and with representatives from the Department of Commerce's SelectUSA program. In doing so, the issue of job growth was put on the table which became a much “broader discussion than simply the people that go into a factory and work on a particular line,” explained Seitz.

“If you look at the total R&D status in the entire U.S., 70 percent of that R&D status is attributable to that 10 to 20 percent of manufacturing” that makes up the U.S. economy, he said. And while the statistic is relevant, he explained that “it is not really not indicative of anything other than the address you put on a product patent application.”

“One of the things that there is a lot of concern on, is as that manufacturing leaves, there is a real dissipation of that sensor of where the R&D occurs,” Seitz continued. “What’s more important is ‘where is that R&D that is supporting that patent?’”

And while it may be too early to tell what investments will be made at the federal level to support the R&D that goes specifically into the U.S. manufacturing of a product, perhaps the existence of the ARPA-E fund, which supports research in all areas of energy R&D, points to positive initiatives in more U.S. R&D to come.

“Today, more and more of the R&D that goes in to supporting that incremental innovation that occurs when you have the product line next door to the people that are sitting down and doing the R&D—that is done where the manufacturing is done,” said Seitz. “So when you talk about jobs, it’s all of the support, all of the R&D and all of the high-value engineering and innovation that goes on around that.”

Initiative definitions

So what qualifies as “Made in the USA?” While its original concept 20+ years ago was in a period of traditional manufacturing, before U.S. companies started largely outsourcing overseas to offset costs, the challenge today is in the value preservation of the IP that goes into the making of a product.

For ex., in the case of mobile technology, i.e. cell phones, which today have an average product lifecycle of one year or less before a new product is on the market, “that silicon in the chip is not necessarily what the value is,” explained Seitz.

“There is a general rule that you have to have 70 percent of the materials that you use to produce that cell phone have to be from U.S. sources and made in the U.S. But the value is the IP—the software and the programming and the development that goes into making those things work, that is often times developed here in the U.S. So it’s R&D and it’s IP—it’s an intangible good that is manufactured within the U.S. The hardware is not a value anymore—it’s the software that runs it.”

As reports such as this one continue to be generated regarding the state of U.S. manufacturing, businesses must weigh all the necessary factors—including that R&D, consumer demand for their specific product, IP, labor costs, site selection and regionalized markets—more to weigh what part they play in this discussion.

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