China Too Costly for U.S. Manufacturers

April 30, 2008

According to several recent reports, factors such as rising wages and an increased focus on environmental standards and product safety in China are shrinking profit margins and forcing U.S.

According to several recent reports, factors such as rising wages and an increased focus on environmental standards and product safety in China are shrinking profit margins and forcing U.S. manufacturers with operations based in the country to consider moving elsewhere. So China, which over the past decade has attracted a mass influx of foreign manufacturers with its tremendous profit potential, is, oddly enough, gaining a reputation as too expensive for U.S. manufacturers to do business … But is it really?

One story on this topic, "Costs driving U.S. manufacturing firms out of China: AmCham," (AFP, Apr. 29, 2008), reported that a recent survey by the American
Chamber of Commerce (AmCham, showed more than two-thirds of its member companies believed that China was losing some of its
competitive advantage in global markets due to rising costs. As a result, the agency said U.S. manufacturers are being forced to leave the country.

However, later on in the story, AmCham’s survey is reported to have shown 74 percent of its member companies described themselves as either profitable or very profitable in China, with 89 percent of survey respondents indicating they had an optimistic or slightly optimistic outlook for the next five years of doing business in China.

Herein lies the contradiction that raises my eyebrows … If all of these companies are reporting profits from their China-based operations and are optimistic about their future in China, how are they being "forced" to leave the country due to rising costs?

I understand the hallmark of a successful business is one that improves with each
passing year. And I also understand that just because a business is profitable doesn’t mean it is on an upward trend. However, I worry that this never-ending quest for monetary gain will be the ultimate downfall of the American manufacturing industry. If we follow the principles and innovative spirit on which this country has reached such great heights, would we find ourselves moving our manufacturing plants not only outside the United States, but from country to country, chasing the cheapest labor and costs of doing business?

It seems to me that somewhere along the line, the U.S. business model has grown so convoluted that it no longer represents the American belief system. Instead of focusing on developing a long-term strategy that revolves around quality products that engender a certain brand loyalty from the customer, U.S. manufacturers are increasingly lusting after huge short-term gains that have nothing to do with the actual manufacturing process or the end product, but rather, I would argue, are merely manifestations of microeconomic chicanery.

For me, as an observer and prospective customer of the American manufacturing
industry, I’m frustrated when I read of U.S. manufacturers leaving China due to cost
concerns, because it just reinforces the idea in my head that so many of our companies have become addicted to profit margins and are now blind to the value of quality product.

Still, there are some U.S. manufacturers that continue to value the “Made in the USA” brand. For example, Omega Engineering (, a manufac-
turer of fluid handling products and, I should mention for purposes of full disclosure, a loyal Flow Control advertiser, still produces many of its products in the United States.

You may wonder, as I do, how Omega is able to do this in an era of global competi-
tion. And in an effort to take this rant from mere complaint to a higher level of informational quality, I’m currently setting up interviews with Omega and some other fluid handling providers that still manufacture here in the good ‘ole US of A to ask them just that … How can you manufacture in the United States and be successful? Check this page in the June issue for a summary of the responses I receive. Meantime, if you want to opine on the state of the U.S. manufacturing industry, feel free to e-mail me at the below address. I’d love to hear your com-
ments on this issue.

— Matt Migliore, Editor
[email protected]

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