The future of hand and power tool manufacturing: Made in the U.S.A?

Since 2005, China’s power hand and tool shipments have continually topped US$3 billion, climbing an average of 17 percent annually in terms of value (China Sourcing Report, 2008). However, times are changing.

The hidden costs of Chinese manufacturing

In an effort to boost domestic consumption and relieve pressure on households striving to keep up with rising food and property taxes, Shanghai has raised the minimum wage by 14 percent (Industry Week, 2011), and Shanghai is only one of many jurisdictions to make such a move. In addition, nearly all market analysts expect the Chinese Yuan will continue to rise in 2011, questioning only by how much (Kritzer, 2011). The higher the value of the Yuan, the more expensive it will be to import goods from China into the USA.  Until such time as Washington DC and European governments can get a handle on their deficit spending and mounting debt, the trend towards a stronger Yuan will continue.

Yet, the promise of cheaper labor still drives many U.S. hand and power tool companies to manufacture their products in China. These deal-seeking product developers often underestimate the total cost of purchasing a product and getting it to a warehouse or destination (Blankenship, 2008). Shipping products from China to the U.S. can be far more costly than most manufacturers estimate; shipments from China to the U.S. take approximately 4-5 weeks, and air freighting can take 7 days for bulk shipments. Moreover, if a quality problem is discovered in the United States, the true cost of manufacturing offshore in places such as China becomes significantly more than the quoted price (Goldsberry, 2011).

Security of Intellectual Property in China

Product piracy is all-too-common in China; companies sharing their product development secrets with Chinese manufacturers often do so at their own risk. In fact since last October, Chinese authorities have arrested 3,001 people on charges of rampant product piracy and seized fake or counterfeit medicines, liquor, mobile phones and other goods (Pakistan Defence, 2011). While the Chinese government should be commended for their efforts to step up enforcement, they still have a long way to go.

The future of hand and power tool manufacturing

While it’s unlikely that simple, high volume consumer products will be manufactured in America, more complicated or custom products may be a better fit (Collins, 2011). A recent study by Archstone Consulting (2011) found many manufacturers contemplating bringing manufacturing back to the U.S. In fact, nearly 90 percent of manufacturers are considering changing or have already changed their manufacturing and supply strategy. The study cited many reasons, including rising fuel costs and increasing Chinese wages.

In the future, it will take more than low-cost labor for hand and power tool developers to remain competitive. The increasing cost of doing business with China and innovative American technologies is making “made in the U.S.A.” a more attractive option for tool design and development.

Works Cited
3,001 Arrested For Product Piracy In China’s Latest Crackdown, Officials Say (March 14, 2011). Pakistan Defence. Retrieved from http://www.defence.pk/forums/world-affairs/98140-3-001-arrested-product-piracy-chinas-latest-crackdown-officials-sa.html
Archstone Consulting (2011). Retrieved from http://www.archstoneconsulting.com/

Blankenship, Dylan (May 9, 2008). Landed cost: The hidden costs of customs and shipping. Smart China Sourcing. Retrieved from http://www.smartchinasourcing.com/shipping/landed-cost-hidden-costs-of-customs-and-shipping.html

Collins, Michael, Bringing Manufacturing Back to the U.S.A. (2009). Manufacturing Net. Retrieved from http://www.manufacturing.net/Articles-Bringing-Manufacturing-Back-To-The-USA-041009.aspx

France-Presse, Agence (March 2, 2011). Shanghai Raises Minimum Wage 14%. Industry Week. Retrieved from http://www.industryweek.com/articles/shanghai_raises_minimum_wage_14_24016.aspx

Goldsberry, Clare (2010). Bringing Manufacturing Back to the United States, Dec/Jan 2010. Retrieved from http://www.areadevelopment.com/siteSelection/dec09/united-states-manufacturing-insouring-costs1102.shtml

Kritzer, Adam (January 18, 2011). Chinese Yuan Continues to Tick Up. Forex Blog. Retrieved from http://www.forexblog.org/2011/01/chinese-yuan-continues-to-tick-up.html

Power Hand Tools: China Sourcing Report (2008). China Success Stories. Retrieved from http://www.chinasuccessstories.com/china-sourcing-report-power-hand-tools/