Archive for ‘Reverse off-shoring’

03/11/2013

China? They’ll make it cheaper in Yorkshire | The Sunday Times

We spotted this trend – initially called “reverse outsourcing”, now re-labelled Reshoring – 15 months ago.  See:

Reshoring is surely gathering pace.

“THE EXODUS is over. British business is coming home.

A growing number of firms, like fashion chain Zara, are looking to bring their manufacturing operations to Britain

A decade ago, companies began to move to the Far East on the promise of cheap labour. Thousands were lured offshore as they sought to keep up with more nimble foreign rivals.

Today, that trend may be reversing. The boardroom buzzword is “reshoring” as a growing number of firms of all sizes look to repatriate their manufacturing operations to Britain.

Rapidly rising wages and energy costs in Asia have soured the dream for many businesses. By contrast, falling real wages in Britain are making domestic production look attractive again.

Detailed numbers are difficult to come by but Zara, the fashion chain, Symington’s, the food manufacturer, and Hornby, the model train producer, are among those that have pledged to produce more domestically.

Tony Caldeira’s textile company is another. It has been shrinking its operations in China and ramping up production in Britain.

“The tide began to turn about 18 months ago with a worsening exchange rate and increasing labour and freight costs,” he said.

Ten years ago, in the face of growing pressure to compete with more efficient foreign competitors, Caldeira closed a factory in St Helens, Merseyside and opened one in Hangzhou, a city of nearly 9m people in eastern China.

“Overseas rivals were selling goods cheaper than we could produce them. Our customers said we needed to lower our prices or they would go elsewhere. We thought, ‘If you can’t beat them, join them’,” Caldeira said.

Hangzhou is the textiles capital of the world, with about half the industry’s production emanating from within a 100-mile radius of the city, including many of Caldeira’s suppliers.

The company’s transport costs fell dramatically and it grew quickly. It moved into a new factory four times in five years, on each occasion into larger premises.

But the benefits began to decline as the value of the renminbi climbed. When Caldeira arrived in China, the exchange rate was 14 renminbi to the pound; now, a decade later, it is less than 10.

The biggest factor pushing many British companies to abandon China has been soaring labour costs. From 2000 to 2008, real wages in Asia rose 7%-8% a year, according to the International Labour Organisation. In China, pay jumped 19% a year between 2005 and 2010, according to Boston Consulting. In advanced economies, real wages increased less than 1% over a similar period.

“We redid the maths and realised it was no longer cost-effective,” Caldeira said.

The company’s Chinese workforce has been halved from 150 to about 70. In Britain, it has hired 25 cutters, sewers, warehouse workers and designers.

Caldeira doesn’t plan to pull out of the Far East altogether. China still has some benefits, and he plans to make some goods there and others back home. “For us, it is literally the best of both worlds,” he said.

James Laxton’s timing was brave, if not suicidal. In 2009, as the financial crisis was unleashing misery around the globe, he decided to shut down the overseas operations of his family’s 100-year-old wool manufacturing company and open a mill in Yorkshire.

The company’s products had been produced in Turkey and China for eight years but its foreign partners were becoming increasingly unreliable. Laxton, great-grandson of the company’s founder George, decided to try it himself.

“The issues were getting bigger and bigger. Delivery times were getting longer, the service was deteriorating and transport costs were rising,” he said.

Since opening the Yorkshire mill at the start of 2010, the company has made two further investments so it can expand and upgrade the plant. Employee numbers have grown from 3 to 25.

“The quality of our goods and services has improved and we can bring new products to market much quicker,” he said.

Bathrooms.com, a maker of bathroom products, recently cancelled orders worth £1m with Chinese manufacturers and awarded them to businesses in the Midlands.

“Instead of taking nine months from design to production, it can take as little as two months,” said Ian Monk, the company’s founder.

But it won’t be bringing all its manufacturing back to Britain. Some products, such as shower doors, are produced so cheaply in China that others can never compete.”

via China? They’ll make it cheaper in Yorkshire | The Sunday Times.

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30/06/2013

DFS supports British manufacturing resurgence

The trend to reduce manufacturing in China continues to gather pace. The main causes are rising labour costs and high shipping costs.

The Observer: “Anyone subjected to brash DFS adverts promising double discounts and 0% finance on sofas would think it was impossible for the furniture firm to get its products from anywhere other than low-cost factories in the developing world.

Bringing jobs back home: DFS chief executive Ian Filby at the furniture manufacturer's production fa

However, the company is one of a number of British businesses, including Golden Wonder, Hornby and Aston Martin, that has stopped shipping products back to the UK and is transporting jobs to these shores instead, making it the biggest sofa manufacturer in Europe.

At a DFS factory on an industrial estate in Derbyshire there are banks of sewing machines, state-of-the-art fabric cutters and gas-powered staple guns.

Harvey Ellis, head of manufacturing at DFS, who oversees the 838 workers on three sites and in two woodmills, explained: “Once we receive an order, it takes just four days to go from an order on our screens to being loaded on to a van. The frames are shipped in from our wood factory six miles away and we will make 3,000 pieces a week. Today we’ll complete 900.”

In three years DFS has toned down its Chinese activities to join the march of the makers, increasing UK production by a quarter. One worker, nail gun at the ready, said he could cover an entire sofa with fabric – sewn by the factory’s seamstresses – in less than 30 minutes.

It is a skill in much demand. The desire for British-made products has become so great that the factory in Alfreton has just increased its workload, adding an extra shift to keep it running 16 hours a day. Along with two more factories in Doncaster and Long Eaton, it means DFS now makes nearly all of its fabric sofas in the UK, accounting for half of all furniture sold by the company. Only the labour-intensive leather products are still made abroad.

DFS chief executive Ian Filby said he wanted to see the business return to its British roots, and that customers now asked why the company did not make more of its UK credentials.

“Customers are astounded to think that a value-for-money player is also a major UK manufacturer,” he said. Then, with a nod to the dark days of the three-day week, he added: “We all know about the bad old seventies, but the historical mindset of ‘all UK manufacturing is shoddy’ has gone full circle and people now see the UK as the sort of place where people work hard and make a decent crust. People believe that quality product is made in the UK and aren’t going to buy British if the product is poor.”

DFS appears to have tapped into a patriotic zeal among the British public. Its market share has risen from 25% to 28% in the last three years and Filby believes that there are also compelling financial reasons for bringing work back to the UK.

“I’d be surprised if there’s not a lot of British manufacturers wanting to be more responsive to shorter lead times. We’re never going to compete with the sweatshops of the Far East as a country, but you can manufacture here as long as you’re adding design or R&D [research and development]. I think the other phenomena which people recognise and is going to continue, is that moving things around the globe is expensive.”

And it is not just DFS that has seen the benefits of shifting work back to the UK. This year Golden Wonder revealed that its Pot Noodle snack will be made in Leeds instead of being shipped 10,000 miles from China, and Aston Martin Rapide S cars are now built in the Midlands, while clothing businesses including Topshop and Marks & Spencer are selling more British-made outfits.

Lee Hopley, chief economist at the EEF manufacturing association, explained that manufacturing in the UK was increasing as costs overseas grew and customers became more demanding.

“I think customers would be surprised by how much is made in the UK,” she said. “There is a lingering perception that it is still made overseas. Manufacturing output is higher now than the 1980s in real terms, although we’re still 11% below our pre-recession peak. There’s been big investment in technology and equipment, while there is also a focus now on innovation to look beyond the product.”

Model railway maker Hornby is another example, shifting its paint production back to the UK from China after there were fears that any quality issues would take several weeks to be resolved. Executive chairman Roger Canham added that making products closer to home helped businesses respond to demand – and check for errors – more easily.

“It takes four weeks for a shipment to arrive from China, which means if you want to check the quality you have to wait until it arrives,” he said. “Now, if I want to check all I need to do is jump in a car and go to the factory.

“There was a huge surge in manufacturing from China in the 1990s, but now that wages are increasing and shipping is more expensive it’s slowed down. We’ve got a new range of Airfix quick- build models which we will manufacture in the UK because it gives us a better chance to respond to demand quickly.”

And with the shift in work back to the UK come much-needed new jobs, at a time when youth unemployment running at around 20%.

Filby said he would create 250 new jobs at DFS this year, having hired 400 new people in the 18 months to January, and revealed that one of the benefits of having UK factories was the loyalty he got from the staff who had worked there for generations.”

via DFS supports British manufacturing resurgence | Business | The Observer.

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11/03/2013

* Toy Maker Brings K’Nex Production Back to U.S.

Yet another example of manufacturing returning to the West.

WSJ: “As every American child knows, toys come from the North Pole or—more likely—China. But K’Nex Brands LP, a family-owned company in this Philadelphia suburb, is trying to prove they can still be made in America.

image

Over the past few years, K’Nex has brought most of the production of its plastic building toys back to its factory in Hatfield from subcontractors in China. To make that possible, the company has redesigned some of the toys and even handed over to kids a bit of the assembly formerly performed by hand in China.

“In the long term, it’s much better for us to manufacture here,” says Joel Glickman, chairman of K’Nex and its manufacturing affiliate, Rodon Group. The two companies have combined sales of more than $100 million, making them small players compared with American rivals Hasbro Inc. HAS +1.49% and Mattel Inc., MAT +0.41% neither of which has announced plans to shift production to the U.S.

By moving production closer to U.S. retailers, K’Nex said it can react faster to the fickle shifts in toy demand and deliver hot-selling items to stores faster. It also has greater control over quality and materials, often a crucial safety issue for toys. And as wages and transport costs rise in China, the advantages of producing there for the U.S. market are waning.

But K’Nex has found it impossible so far to produce 100% U.S.-made toys, the firm’s goal. The K’Nex experience shows both the attractions of “reshoring” production and the difficulties of making that happen in a country whose manufacturing infrastructure has atrophied.

Lining up suppliers has been a complicated chore in the U.S., where toy-making skills have faded. China, by contrast, has a vast, efficient network of suppliers and skilled labor. “In China, you can go over with just a drawing and say, ‘I need a million of these,'” says Michael Araten, chief executive of K’nex. That helps account for a huge U.S. deficit in the toy trade. In 2012, U.S. imports of toys, games and sporting goods, mostly from China, totaled $33.5 billion, or about three times U.S. exports of such items.”

via Toy Maker Brings K’Nex Production Back to U.S. – WSJ.com.

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03/02/2013

* The slow boat back from China

Another article about the ‘return’ of manufacturing from China; this time to Britain.

Sunday Times: “Janan Leo had waited what felt like for ever to find a British shoemaker to help bring production of her ballet pumps to Britain from China.

Janan Leo makes ballet pumps

When Leo launched her company, Cocorose London, in 2007 the savings offered by cheap Chinese labour outweighed the benefits of British production. In recent months, however, her costs have gone up about 30% because of spiralling wages and raw materials prices in the Far East and rising shipping fees.

“In the early days we had the bags for our shoes made in London, but it was far too expensive so we sent everything offshore,” said Leo, 32, who had sales of £1m last year. “Now the cost advantages are less clear-cut.”

In 2011 she approached a family-owned factory in Northamptonshire, near the headquarters of the renowned Church’s and Loake shoe brands, to make a new range of pumps.

At first, the supplier was unsure. “They were worried about sourcing materials and the cost of the equipment needed just to make the samples. These aren’t problems I’ve ever had in China.”

The deal went ahead and Cocorose’s second luxury collection is now on sale. “British manufacturing is still not as cheap as in the Far East but the upsides more than offset the costs. Customers in Japan and South Korea are going mad for the British heritage [and] the quality is outstanding.”

It started as a trickle, but now a steady stream of small firms are bringing some or all of their manufacturing home as the gap between Chinese and domestic production costs narrows. Chinese pay has doubled over the past decade.

Small firms are also finding that supply chains stretching from Beijing to Britain are vulnerable to disruption. More than a fifth said cashflow complications from delayed orders had hurt their businesses, according to research by EEF, the manufacturers’ group.

“Companies in sectors as diverse as clothing, components and computer equipment are all weighing up whether to bring production back home,” said Simon Nicholson, an international trade adviser at Barclays. “It’s driven by cost and delivery, but firms are also catching on to the idea of Britain as a brand with real cachet in foreign markets.”

Yet factories here may be ill- equipped to meet this growing demand. “British firms have been quietly starting to bring contracts back home since about 2009, but it is taking time for them to find the right suppliers, and for producers to buy the plant and machinery needed,” said Lee Hopley, chief economist at the EEF.

Andy Loveland’s business, Earlyrider, has used a Chinese manufacturer to make its wooden Balance Bikes for small children since its launch in 2006. But Oxfordshire-based Loveland, 41, wanted a British company to make his latest product, a toddlers’ ride-on toy called the Spherovelo.

“We needed to work closely with an industrial designer and to control production because the Spherovelo is completely original — and, unlike our Balance Bikes, labour would be only 15% of overall production costs.”

Loveland’s experience with Inject Plastics, the Plymouth factory he commissioned to make the tools and produce the Spherovelo, was mixed. “The tooling was supposed to take three months, but in the end it was seven. It meant we had to let down a key customer, which was devastating.”

Inject went into administration but in December it was bought by Magmatic, the business behind the Trunki ride-on suitcase for children. Rob Law, Trunki’s founder, had moved production from China to the factory seven months earlier.

He said: “It was a long-held ambition to manufacture in Britain — for ourselves and other companies, such as Spherovelo — and shipping was going through the roof.” Magmatic’s door-to-door transport costs rose 58% in the first five months of 2012.

Since the move to Britain, Trunki’s lead times have shrunk from 120 days to 30. As a result, the firm holds less stock, and pressure on cashflow has been eased. “Best of all, we saved jobs and created new ones,” said Law.

Andrew Cock has also opted to take manufacturing into his own hands. In May his £30m-turnover company, Multipanel UK, will open a factory near Dover making panels for road signs and shop fascias. The £5m facility will use Taiwanese machinery and British recycled plastic to make about 60% of the firm’s output. The rest will continue to be made in China for sale to Asian customers.

“We took the decision a couple of years ago when Chinese costs started rising,” said Cock, 51, who reckons that labour has increased 30% over 18 months, while raw materials are up about 15% after currency movements are included.

“It’s not just a financial decision, it’s about quality too,” added Exeter-based Cock. “We want to win business by making the best product at the least cost. We also think that cutting our products’ carbon footprint will open the door to big corporate customers with a corporate social responsibility agenda.”

Multipanel’s investment has so far been funded from cashflow, but not all manufacturers in loan-starved Britain have access to expansion capital.

“We are working with lots of producers that have downsized during the recession but are now being asked to make small, high-quality batches,” said David Wright of Growth Accelerator, a government-backed advisory service. “They have the skills to adapt to new jobs but they lack the cash to scale up.””

via The slow boat back from China | The Sunday Times.

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06/01/2013

* Flextronics CEO Sees Hope for U.S. Tech Production

Yet another article on manufacturing moving back to Western countries. This is particularly where the cost of labour is a small fraction of the total cost of production – eg in high-tech products. 

WSJ: “The CEO of Flextronics International Ltd.,  a Singapore-based company that helped hundreds of firms move manufacturing of electronic parts and products to Asia, says it is getting “easier to justify” production in the U.S.

image

The difference in labor costs is narrowing and local officials in America have been giving more financial incentives to companies setting up plants in the U.S., Mike McNamara, chief executive of Flextronics, said in an interview Friday. Mr. McNamara said he could even imagine some smartphones being made in the U.S. eventually. But he cautioned that the return of manufacturing to the U.S. is likely to be a “slow and evolving process” rather than a flood. Many obstacles remain, including relatively high U.S. taxes, health-care expenses and regulatory costs, he said.

“In Asia, if I want to get something done, we just go and get it done,” he said. An Asian plant with 5,000 employees could be set up in 90 days, he said, but it takes much longer in the U.S., partly for regulatory reasons. Flextronics has plants in 30 countries, including the U.S.

Apple Inc.  raised hopes for a revival of U.S. manufacturing a month ago by announcing plans to build some Mac computers in the U.S. for the first time in about a decade. Flextronics says Apple is one of its customers, but Mr. McNamara declined to comment on whether his company could be involved in the Mac initiative. Apple declined to comment on exactly where and how those computers will be made.

In the first decade of this century, Mr. McNamara said, manufacturers flocked to low-wage countries. Over the next decade, he said, more are likely to adopt regional manufacturing strategies, making goods closer to where they are sold. That can reduce transport and inventory costs; it also allows companies to respond faster to changes in demand and more effectively protect technological secrets.

Asian plants typically have more flexibility to set up new production lines quickly, which is important for products with short life cycles like smartphones. Still, as products become more customized and companies try harder to keep rivals from copying technology, Mr. McNamara said, some phone makers who want to make products to order for local customers eventually may produce certain types of smartphones in the U.S.

Flextronics, founded in 1969 in Silicon Valley and incorporated in Singapore in 1990, provides design, logistics and manufacturing services for several hundred companies. Mr. McNamara said Flextronics is the world’s second-largest company in that business, after Hon Hai Precision Industry Co.,  known as Foxconn and based in Taiwan.”

via Flextronics CEO Sees Hope for U.S. Tech Production – WSJ.com.

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06/01/2013

* Raspberry Pi production moves to Wales from China

Yet another example of manufacturing of high-tech (hence low proportion of labour cost) back to the West.

BBC: “Production of the popular Raspberry Pi computer is switching from China to south Wales.

Raspberry Pi with SD memory card attached

The £16 credit card-sized computer, which aims to get young people interested in programming, was launched earlier this year to critical acclaim.

The success of the venture has now seen Sony step in to offer its Pencoed plant near Bridgend to make the mini-computer.

The deal will see 300,000 boards built, creating an extra 30 jobs at the site.

Sony will make the new computers for the company Premier Farnell, which distributes the Raspberry Pi on behalf of the device inventors, the Raspberry Pi Foundation.

It’s been coming off the lines at Pencoed for a few weeks, so people now actually have them in their hands”

Eben Upton, the charity’s executive director said: “It’s a fantastic day for us. This has been in the pipeline for about six months after we visited the Sony site.

“It is so good to see that we can still do this sort of thing in the UK – do it in Wales.”

via BBC News – Raspberry Pi production moves to Wales from China.

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07/12/2012

* Apple to return some Mac production to U.S. in 2013

Yet another instance of reverse offshoring or re-onshoring.

Reuters: “Apple Inc plans to move some production of Macintosh computers to the United States from China next year, Chief Executive Tim Cook said in remarks published on Thursday, in what could be a important test of the nascent comeback in U.S. electronics manufacturing.

An Apple logo is seen at the Apple Worldwide Developers Conference 2012 in San Francisco, California June 11, 2012. REUTERS/Stephen Lam

Apple makes the majority of its products, from Macs to the iPhone and iPad, in China, the world’s factory floor for electronics. But like other U.S. corporations, it has come under fire for relying on low-cost Asian labor and contributing to the decline of the U.S. manufacturing sector.

Cook did not say which Macintosh products will be produced in the United States. But the effort is expected to go well beyond simple final assembly of devices, with Apple and unnamed partners building most or all of the components in the United States as well.

The company will spend more than $100 million on the U.S. manufacturing initiative, Cook said in an interview with Bloomberg Businessweek, published on Thursday.”

via Apple to return some Mac production to U.S. in 2013 | Reuters.

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03/10/2012

* Lenovo to open PC production plant in US

Maybe reverse-offshoring – at least for manufacturing – is for real?  we will keep watching out for such news.

IET Magazine: “Lenovo will open its first PC production plant in the United States with operations expected to begin in 2013.

Lenovo's laptop PCs are displayed at an electronic shop

The Whitsett, North Carolina, facility will manufacture Think-branded laptop and desktop PCs, tablets and servers aimed at the US market, Lenovo said in a statement this week.

Lenovo, the world’s number two PC maker, did not provide any investment figures but said it would create 115 jobs.

Over the past two years, Lenovo has invested in new plants and manufacturing joint ventures in China, Brazil and now the US to produce PCs and mobile Internet devices such as smartphones, it said.

Analysts have said Lenovo is set to overtake Hewlett Packard later this year as the world’s largest PC maker.”

via Lenovo to open PC production plant in US – E & T Magazine.

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15/07/2012

* Google Tries Something Retro – Made in the U.S.A.

NYTimes: “Etched into the base of Google’s new wireless home media player that was introduced on Wednesday is its most intriguing feature. On the underside of the Nexus Q is a simple inscription: “Designed and Manufactured in the U.S.A.”

The Google executives and engineers who decided to build the player here are engaged in an experiment in American manufacturing. “We’ve been absent for so long, we decided, ‘Why don’t we try it and see what happens?’ ” said Andy Rubin, the Google executive who leads the company’s Android mobile business.

Google is not saying a lot about its domestic manufacturing, declining even to disclose publicly where the factory is in Silicon Valley. It also is not saying much about the source of many of its parts in the United States. And Mr. Rubin said the company was not engaged in a crusade.

Still, the project will be closely watched by other electronics companies. It has become accepted wisdom that consumer electronics products can no longer be made in the United States. During the last decade, abundant low-cost Chinese labor and looser environmental regulations have virtually erased what was once a vibrant American industry.

Since the 1990s, one American company after another, including Hewlett-Packard, Dell and Apple, has become a design and marketing shell, with production shifted to contract manufacturers in Shenzhen and elsewhere in China.

Now that trend may be showing early signs of reversing.

It’s a trickle, but some American companies are again making products in the United States. While many of those companies have been small, like ET Water Systems, there have also been some highly visible moves by America’s largest consumer and industrial manufacturers. General Electric and Caterpillar, for example, have moved assembly operations back to the United States in the last year. (Airbus, a European company, is said to be near a deal to build jets in Alabama.)

There is no single reason for the change. Rising labor and energy costs have made manufacturing in China significantly more expensive; transportation costs have risen; companies have become increasingly aware of the risks of the theft of intellectual property when products are made in China; and in a business where time-to-market is a competitive advantage, it is easier for engineers to drive 10 minutes on the freeway to the factory than to fly for 16 hours.

That was true for ET Water Systems, a California company. “You need a collaboration that is real time,” said Pat McIntyre, chief executive of the maker of irrigation management systems, which recently moved its manufacturing operation from Dalian, China, to Silicon Valley. “We prefer local, frankly, because sending one of our people to China for two weeks at a time is challenging.”

Harold L. Sirkin, a managing director at Boston Consulting Group, said, “At 58 cents an hour, bringing manufacturing back was impossible, but at $3 to $6 an hour, where wages are today in coastal China, all of a sudden the equation changes.”

The firm reported in April that one-third of American companies with revenue greater than $1 billion were either planning or considering to move manufacturing back to the United States. Boston Consulting predicted that the reversal could bring two million to three million jobs back to this country.”

via Google Tries Something Retro – Made in the U.S.A. – NYTimes.com.

This cost difference is continuing to erode away as China has been increasing its basic wages by between 10-15% per annum for the last 10 years and intends to continue doing so in order to improve the standard of living of the working person thereby passing on the benefits of the improving GDP.

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30/05/2012

* Apple CEO wants to make less products in China

 

From China Daily Mail blog: Apple CEO wants to make less products in China.

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