U.S. small businesses are moving away from overseas manufacturing in China in favor of domestic American manufacturing companies. There are several factors driving this shift, many of which are cost-driven. Prices in China have gone up in recent years due to rising labor costs, an increase in transportation costs, and currency shifts, meaning that this is no longer necessarily the cheapest option. In addition, with the continuing uncertainty of the U.S. economy, by ordering domestically small businesses are better able to control their inventory. In other words, rather than having to order huge quantities to justify overseas costs, small businesses can substantially reduce those orders and keep their money from getting tied up in unsold product.
Another major factor contributing to the SB shift to American manufacturer is concern about quality, particularly in those industries that rely on more niche parts, which the U.S. manufacturing sector is particularly strong in. For a small business beginning to mass produce a product, an American manufacturer can make more sense than taking the risk of ordering overseas and ending up with poor quality parts.
There has also been a structural shift in the way American manufacturers do business. As foreign competition has risen, U.S. manufacturing has moved away from large companies to a decentralized network of specialized firms. Not only are these firms good at what they do, but they work hard to foster close customer relationships and are willing to customize products to meet customer needs.
Many small businesses are also motivated by the possibility of production and shipping delays overseas, which might be merely an inconvenience for a large company but can be disastrous for a small business. Many small businesses are additionally trying to adhere to a greener business model and don’t want to leave the large carbon footprint that’s inevitable with overseas shipping.
All this has led to a welcome uptick in the American manufacturing industry, with the sector adding 330K jobs over the past 2 years. In fact, the New York Times recently called manufacturing an “area of strength” in the nation’s overall economy.
Kavilanz, Parija. “Dumping China for American Job Shops.” CNN money 2/13/12. (2/13/12.) http://money.cnn.com/2012/02/13/smallbusiness/American_manufacturing/index.htm?iid=SF_SB_Lead.
Norris, Floyd. “Manufacturing Is Surprising Bright Spot in U.S. Economy.” New York Times. 1/5/12. (2/13/12.) http://www.nytimes.com/2012/01/06/business/us-manufacturing-is-a-bright-spot-for-the-economy.html.
Small Business Labs. “The Rise of Small and Micro Manufacturing.” Emergent Research. 2/7/12. (2/13/12.) http://www.smallbizlabs.com/manufacturing/.