U.S. Manufacturing Summit ‘Just A Start’

Some of the most influential business and public policy leaders in the country took the stage today in Orlando, at Wal-Mart’s U.S. Manufacturing Summit to discuss what it will take to bring more manufacturing jobs back to the U.S.

“We need to make things again in America, manufacturing represents middle class jobs that this country needs. We can’t just be a service economy,” Bill Simon, CEO of Walmart U.S., said in his opening remarks.

He said there was a time when a job at a local manufacturer meant a ticket to the middle class, but many of those labor intensive jobs went off-shore chasing lower wages, and the end-result has been a canyon, a hollowed-out middle in the U.S. workforce.

The two-day summit sponsored by Wal-Mart and the National Retail Federation was an attempt to get the right people in the same room to discuss how to rebuild America’s manufacturing sector. More than 600 suppliers and economic development teams from 36 states attended.

During the conference, suppliers announced more than 1,000 new U.S. jobs with investments in excess of $70 million from the likes of GE, Element Electronics and sock makers Kayser-Roth and Renfro.

“This is just a start as this economic transformation is taking place and the need to make things closer to the areas of consumption,” Simon said.

ONSHORE REALITY
Hal Sirkin, Boston Consulting Group Senior Partner, made a strong case for U.S. manufacturing, citing that American companies have had to get more productive or go out of business.

“The U.S. produces 2.5 times as much manufacturing value added as we did 40 years ago, and we do so with 30% less labor. We are one of the most productive countries in the world,” Sirkin said.

He said wages have risen in China over the past 13 years which have dramatically altered the economic case for manufacturing there. Sirkin said in 2000 labor costs in China were 25% of those in the U.S., and today they are 50% and expected to rise to 63% in the next two years. When adding component and raw material sourcing, shipping and overhead costs, Sirkin said the U.S. trumps China for lower overall manufacturing costs of many products.

Vlad Kazhdan, vice president of Element Electronics, said his family-owned firm met with Wal-Mart earlier this year at the company’s ‘Year Beginning Meeting” as they were planning to build a U.S. plant that makes televisions for Wal-Mart. He said the company had a three-year roll-out plan but Wal-Mart challenged them to be done in nine months. At that time he met with South Carolina Gov. Nikki Haley and together the three interested parties are getting it done. He said before the end of the year the new plant in Winnsboro, S.C., will be up and running, providing 500 new jobs in that community.

“The long term commitment for demand was answered by Wal-Mart, and South Carolina came through with the shorter-term incentives to get the plant operational,” Kazhdan said.

Jeff Immelt, chairman and CEO of General Electric, said now is the time to onshore manufacturing where 25% of the cost is labor. He said refrigerators are another example of a product that could easily be made in the U.S. at a competitive rate today. Some 65% of GE profits come from outside the U.S., so Immelt said he regularly travels the globe. He’s found other nation’s are taking notice of the U.S. and this renewed interest in re-building its manufacturing base.

He said GE is expanding plants in Ohio and Illinois that will provide energy-efficient light bulbs for Wal-Mart. This $30 million investment is creating an additional 120 jobs.

EXPANSION HEADWINDS
Richard Fisher, president of the Federal Reserve Bank of Dallas, told the group that business owners and manufacturers he’s talked with in the past two years are confounded by the uncertainty in fiscal and regulatory policy. He said America should rebuild its manufacturing centers, but in spite of the compelling evidence to expand and take advantage of the cheapest money supply in the country’s 237-year history, manufacturers remain cautious because of taxes and unwanted regulation.

Several state governors took the stage on Thursday, including Arkansas Gov. Mike Beebe. Each state pitted their benefits against the other and the governors candidly discussed some of the perceived challenges manufacturers face when on-shoring jobs. Beebe said having the right workforce is essential to recruiting and retaining companies to a region.

“Sometimes that means you have to work with universities and community colleges to make sure they are offering the kind of programs local manufactures require,” Beebe said.

New Mexico Gov. Susana Martinez said in her state many high school students train simultaneously for vocational trades during their last two years of high school.

“We found our manufacturers needed engineering techs and other skilled support staff which are being educated while still in high school. They graduate with a diploma, an associate’s degree and a job rating certificate,” Martinez said.

Beebe said it’s not just the education level, but also the work ethic that manufacturers consider.

Several governors agreed that businesses need less state and federal regulation in addition to incentive programs to attract domestic and foreign manufactures.

WAL-MART’S STAKE
Critics might ask what is Wal-Mart’s stake in this initiative. As a retailer offering the lowest prices Wal-Mart buys its fair share of products made outside the U.S. The retailer has committed to source an additional $50 billion in products made in the U.S. over the next 10 years. This is less than 20% of the company’s U.S. sales totaling $274 billion last year.

Wal-Mart may be a global company, but its U.S. division accounts for 65% of the company’s total sales revenue.

Wal-Mart said the $50 billion is just a start, and the bigger piece of the story is found in small communities like Griffin, Ga., where people have gone back to work at 1888 Mills making towels sold at Wal-Mart. Earlier this year Wal-Mart said it worked with 1888 Mills on a long-term commitment that gave them the incentive needed to reopen a plant in rural Georgia years after virtually all textile manufacturing moved off-shore. Towels made in the USA were unheard of until 1888 Mills made that first step back on U.S. soil last year. However, the 1888 Mills plant employs less than 50 in the town of more than 23,000 people, and a majority of the company’s operations are located overseas.

Duncan Mac Naugton, chief merchandising officer with Walmart U.S., said Wal-Mart sells a lot of towels, but the 1888 Mills “Made in the USA” product outsold the others by more than 35%.

“Consumers take pride in buying things made in America,” he said.

Wal-Mart is also positioned to win anytime jobs are created in this country, particularly in rural America, where the majority of its 4,000-plus stores are located, company officials have said.

Simon was quick to point out it’s not just Wal-Mart making a difference, but it is getting the right people together – suppliers, retail buyers and government agencies – who can work together to move investment in the right direction.

“We don’t need anyone’s permission,” Simon said, adding that businesses have the capital to invest and the time is right for action.

Mike Harvey, chief operating council for the Northwest Arkansas Council, attended the summit and agreed that Wal-Mart’s push could be a game changer.

“If Wal-Mart says it is going to do something, they can move the needle faster than any government initiative,” Harvey said.