Made in US, But Sold in China

As analysts claim “Made in China” products actually profit American producers, the New York Times reports a manufacturing shift now has certain products made in the United States but sold in China. This shift comes amid a slowdown of manufacturing in China due to the decrease in demand from the US and the European Union:

Standing over a small tank of water in a Brooklyn factory, Zbigniew Solecki plunged a gleaming faucet into the water, then shot air at 60 pounds per square inch into it. He watched for rising bubbles, a sign that an unseen fissure had, unacceptably, let the air stream out. It is a rite of passage that Mr. Solecki performs dozens of times a day.

“Every last piece is pressure-tested before it goes out the door to China,” said Jack Abel, the engineer who built the factory. “Or anywhere else.”

After generations of manufacturers in New York and across the United States folded because they were unable to compete with imports, Watermark, with its only factory in the East New York section of Brooklyn, has managed to crack the code. Instead of trying to make Watermark’s products cheaper, Mr. Abel has prospered by first making them more expensive — offering custom-made fixtures unique to each building — and then figuring out how to do that at lower cost. The company has supplied thousands of fixtures to six new luxury hotels and condominiums being built in Shanghai, Macau and Hong Kong.

Manufacturing jobs in New York have declined by about 80 percent from a high of 1.1 million jobs in 1947, all but shutting down what had been a heavily trod avenue into the middle class for immigrants and people without advanced educations.

Aside from custom-made water faucets, US manufacturers are producing other high-end products to meet Chinese demand, from Jing Daily:

Going against the decades-long trend of lower-priced Chinese imports flooding the US market, a growing number of American manufacturers, fashion brands, leathergoods makers, and family-run wineries are looking to China’s luxury consumer as a new and important target market. Over the past few years, smaller companies — rather than just high-end giants like Tiffany & Co. and Coach — have found that undertaking a higher pricing strategy, rather than targeting the mid- or low-end mass market, is a plus in China.

Demand from high-end property developers in search of top-quality faucets and construction materials isn’t the only trend leading American companies to China. For some apparel, accessories and footwear brands, the growing number of wealthy mainland Chinese now moving away from “bling” and towards low-key high-end consumption is providing a whole new demographic. This November, the Wisconsin-based shoemaker Allen Edmonds – for decades, the go-to footwear brand for US presidents and business leaders — plans to open its first location in Shanghai, with an ambitious expansion plan to follow. As Paul Grangaard, president and CEO of Allen Edmonds, said this summer, “We are scheduled to have at least six to 12 flagship stores and over time, 40 or 50 stores in China in the next five years.”

While most smaller-scale, US-made heritage brands generally don’t have the production capacity (or, for some, the desire) to expand into the China market in any major way, a niche is clearly forming. With the likes of Patrik Ervell on the more adventurous side, and Allen Edmonds on the more traditional side, making inroads in China despite virtually nonexistent advertising budgets or huge online campaigns, we can safely assume that demand will only continue to rise for American brands besides Tiffany and Coach. Given the number of well-curated, small multi-brand retailers grows in China as well, the trend may really take hold in a measurable way sooner than we’d expect.

Despite the slowdown in manufacturing and increase in imports, the Financial Times reports the appeal of China as a manufacturing base has not yet disappeared:

Well-known stresses in the current model are becoming more apparent, including a downturn in total factor productivity, which is the vital, unmeasurable part of economic growth resulting from technological change and institutional efficiency. The transition will require difficult political reforms and an effective response to the competitive threat posed by advanced manufacturing, which is slowly tilting advantage back to the US in particular.

China’s attraction as a global manufacturing base has not worn off yet, but several developments are chipping it away. At home, these include rising labour costs and skills shortages, as well as discriminatory application of the policy of indigenous innovation, insecure intellectual property rights, weak rule of law and the stifling impact of state-owned entities on enterprise.

By contrast, the US is a clear leader in top-end manufacturing, the creation of “smart” companies and in intricate touchscreen technologies. Even more important will be its competitive advantage in new shale oil and gas extraction technologies, and in the development of so-called additive manufacturing, or 3D printing, which is set to change the way we think about manufacturing.

These problems will not retard Chinese innovation and technological competitiveness forever. But to adapt, China requires extensive political reform, more robust institutions and a tilt in the role of the state towards supporting enterprise. It will not be helped by the uncertainty over the nature of its downturn and the consequences of the leadership change.

September 23, 2012 10:05 AM
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