Wood Cuts - June 2013
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By Michael Martin
There was a time, not so many decades ago, when the label “Made in America” was associated with products that were considered less than desirable by American consumers. This was most commonly evidenced with automobiles. Japanese-made cars like Toyota and Honda were considered superior to Fords and Chevrolets, and this mindset carried over to other consumer products, which were often considered inferior to their imported competition and were shunned by many U.S. consumers looking for something more durable and long-lasting. In addition, many low-cost imports from countries like China carried, and still carry, lower price tags at retail than their American-made counterparts, so, American consumers, ever in search of a deal, gravitated toward imports for that reason as well.
Fast forward a few years, and changes in the U.S. economy drove the demand for U.S.-made goods into even further decline. As consumer incomes dropped and jobs were lost, economic uncertainty continued to grow, and the demand for low-cost goods increased. This precipitated the trend toward the offshoring of U.S. jobs, particularly in the manufacturing sector. In fact, according to the U.S. Bureau of Labor Statistics, nearly six million manufacturing jobs were lost in the United States between the years 2000 and 2010. Since then, during the last three years, this trend has started to shift.
An April 2013 report titled “How ‘Made in the U.S.A.’ is Making a Comeback,” published by The Curious Capitalist journalist Rana Foroohar, reports that manufacturing growth in the United States is outpacing other advanced nations. Foroohar estimates that “some 500,000 jobs [have been] created in the past three years” in the manufacturing sector since the U.S. economic recovery began. She, like many other experts analyzing the trend, believes the reason behind this shift is the evolving nature of the global economy. She cites rising fuel costs and increasing overseas labor costs as the major factors that are leveling the playing field for domestic manufacturers.
ABC News agrees. Correspondent David Muir reports that “a decade ago, a factory worker in China made $0.58 an hour. Today, wages are more than $3.00 and there are predictions of $6.00 an hour by the year 2015.” While these wages may sound extremely low to the average U.S. employee, one should be reminded that the minimum wage in the United States is just $7.25 per hour. When you add the costs of fuel and the logistics of shipping overseas, the cost savings is practically eliminated.
Then there is the issue of productivity. The Boston Consulting Group conducted a comprehensive study on U.S. manufacturing and concluded that because of technology advantages, the average U.S. manufacturing employee is more than three times as productive as a manufacturing employee from other countries such as China, so the cost savings achieved through cheap overseas labor are negated. Hence the growing trend by U.S. manufacturers to move their operations back to U.S. soil.
Mullican Flooring is one such manufacturer. Last year, Mullican moved the production of some of its engineered wood flooring products from Asia to its new state-of-the-art facility in Johnson City, Tennessee. This marked the first time that Mullican had produced any of its engineered wood flooring products in the United States, though it manufactures all of its solid wood flooring products in U.S. facilities.
Company president Neil Poland believes that Mullican is on the leading edge of bringing engineered wood flooring production back to the United States, and though cost savings is one of the considerations for this move, creating jobs for U.S. workers is equally as important. Brian Greenwell, vice president of sales and marketing, estimates that the facility, which currently employees about 130 people, will employ more than 300 people by the year 2015.
Creating jobs for U.S. workers is one of the primary motivations driving demand for American-made products, according to Paul Stringer, vice president of sales and marketing with Kentucky’s Somerset Hardwood Floors. Stringer believes that consumers are sympathetic to the fact that so many jobs have been lost to overseas operations during the last few decades, and that these consumers are willing to buy American made products when given the choice.
Two independent studies support this belief. The study previously mentioned from the Boston Consulting Group states that 80% of Americans are willing to pay more for products that are made in the U.S., while a study conducted in February by the Consumer Reports National Research Center found that “given a choice between a product made in the U.S. and an identical one made abroad, 78% of Americans would rather buy the American product.” This bodes well for Stringer’s company, which manufactures all of its products in the United States.
Stringer says that Somerset has invested heavily in capital expenditures in the U.S., even during the recession. “We opened our third flooring manufacturing facility in Crossville, Tennessee just last year,” he says. “We had slightly more than 200 employees in 1998, and today we have well over 700. We certainly enjoy creating jobs and opportunities in our community, and within our industry.”
Quality is another reason behind the growing demand for American-made wood flooring, says Tommy Maxwell, president of Maxwell Hardwood Flooring in Monticello, Arkansas. “Reliability of the products purchased is a value, as well as knowing that they are sustainable and green,” states Maxwell. “Because our country has the most well-managed forests in the world, the consumer has more confidence in a domestic floor than an import.” But Maxwell further clarifies that certification programs for wood, such as FSC, have very little impact on a consumer’s buying decision. “In some instances where the consumer did inquire about this certification,” he says, “they were unwilling to pay the extra cost for the certified floor.” The certification program, it seems, does not carry as much weight as the Made in the U.S.A. label in his opinion.
This opinion is shared by Donna Millard, director of sales with McMinnville, Tennessee-based McMinnville Manufacturing Company. Millard has seen a definite increase in demand for its American-made products, but considers that “FSC certification has not been a determining factor in our business. The average consumer is not very educated about certification programs, though they are more diligent when researching a product than ever before.” She also concurs that consumer awareness about the overall economy continues to drive demand for the Made in the U.S.A. label, even if it costs a little more, because people want to support their local communities and the overall economy. After all, she says, “If we don’t support our own, who will?”
While all this is good for the domestic market, what is truly interesting is that the demand for American-made products is not only an American-driven phenomenon. The desire for products made in the U.S.A. is increasing dramatically in other countries as well—in Asia and Mexico in particular. The reason behind this trend is the emerging middle class in both markets.
ABC News correspondent Sharyn Alfonsi reports that a generation ago, 12% of the Mexican population was considered middle class. Now, more than half of the population falls under that classification, which translates to some 70 million people, and they are willing to pay a little more for the Made in America label because they equate it with quality and prosperity. Alfonsi further reports that, according to the U.S. Census Bureau, U.S. trade with the Mexican middle class increased by 17%, translating to more than $198 billion last year. That’s double what it was just five years ago.
The same holds true in Asia. ABC’s Muir reported in May 2012 that “according to the U.S.-China Business Council, the Chinese spent $104 billion in U.S. exports in the last year—up 542% from ten years ago.” The Boston Consulting Group study also reveals that “more than 60% of Chinese respondents said they’d buy the America-made version over the Chinese even if it cost more.”
All this increased demand and market growth is just the boost our industry, and our economy, needs, and U.S.-based manufacturers should pay heed. As recently as this past April, a Gallup poll found that 45% of Americans say they recently made a special effort to buy products made in the United States, so many U.S.-based companies are doing their part to meet the demand, while helping their communities. Their efforts could add up too. This past February, Consumer Reports estimated that the U.S. could add as many as 2.5 million to 5 million manufacturing jobs by the end of the decade.
Even more motivating is the potential for continued market growth. The 2012 U.S. FlooReport, published by Market Insights LLC, projects that each year, a body of consumers equal to one fourth of the current market wants and desires wood flooring. That represents a significant potential for U.S. manufacturers that simply can’t be ignored.
Copyright 2013 Floor Focus