The U.S. manufacturing sector is experiencing a renaissance. As we visit U.S. manufacturers big and small we are witnessing the tremendous pride felt by these companies who know they are beginning to effectively compete against non U.S. manufacturers.
A survey conducted earlier in 2012 by Boston Consulting Group found that one third of U.S. manufacturing companies with sales exceeding a billion dollars are planning to bring production back from China to the U.S.
There are a variety of economic and
technologic drivers supporting the return and resurgence of U.
S. manufacturing. Federal R & D tax credits are available
for many of the new technology drivers.
Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Eligible costs include employee wages, cost
of supplies, cost of testing, contract research expenses, and
costs associated with developing a patent. On January 2, 2013,
President Obama signed the bill extending the R&D Tax
Credit for 2012 and 2013 tax years.
Chinese manufacturing labor costs have risen 15% to 20% per year since 2005. In contrast, U.S. labor costs increased 1.4% in 2011. Currency swings have greatly increased Chinese manufacturing costs since the Chinese currency has gained 33% versus the dollar since 2005.
A long distance supply chain greatly increases costs including inventory, shipping, and fuel costs. Inventory costs increase because the inventory purchaser must hold on to a larger quantity of safety stock due to the extra time to replenish stock from the longer supply chain. When a supplier is local, a U.S. purchaser can use just in time inventory (JIT) processes to greatly reduce inventory costs.
The U.S. has a reliable infrastructure. In contrast, the inadequacy of India's electrical utility system and highway system has greatly inhibited manufacturing growth in that country.
Lastly, tremendous new accessible natural reserves are encouraging large chemical processors and other large fuel users to expand here .
Dow Chemical recently applied for a Federal permit to build the company's biggest ethylene plant based on cheap natural gas. Dow is investing $4 billion in Texas and Louisiana through 2017 to increase the production of ethylene and propylene.
Chevron Phillips Chemical and Exxon Mobil Corp. are also making large ethylene plants known as "crackers". Hydraulic "fracking" has increased the supply of natural gas liquids such as ethane and propane, which are converted into ethylene for use in plastics, anti-freeze, and many other products.
These facilities support U.S. manufacturers of replacement pumps, valves, bearings, and filters that are often needed on an immediate basis and reoccurring.
Shell Oil Co. is set to open its fifth petrochemical plant in Beaver County, Pennsylvania. Set to be complete sometime in the next few years, this PA location is convenient because of its access to rivers, railways, and highways. The site is above a region of "wet gas" which contains valuable natural gas liquids such as ethane.
A recent PricewaterhouseCooper study
indicates that new abundant natural gas resources could
introduce 1,000,000 U.S. jobs by 2025.
Recent years have shown that an increasing number of companies are reshoring jobs back to the US. Companies in the electronic, automotive, and medical device industries have been returning to America, bringing the supply chain close to the US consumers.
In October 2012, the Chinese company Lenovo announced plans to open a computer manufacturing plant in North Carolina. The facility which will mainly produce desktops and tablets is expected to open in early 2013 and create more than 100 jobs in the US.
Apple has also announced its plans to begin manufacturing Macs in the United States. The news came in early December, 2012 that Apple will invest $100 million into producing some of its Mac components in the US.
General Electric will be opening new assembly lines in Louisville, Kentucky, bringing jobs back to the U.S. from China and Mexico. In addition to their existing facilities in Louisville's Appliance Park, these new assembly lines will mainly build refrigerators, water heaters, and washing machines.
Over the next few years, General Motors Co.
will be bringing some of its tasks back to the United States
as well. GM will hire about 1,000 workers to fill high-tech
positions in a new technology center just outside of Atlanta,
GA. The company will be hiring software developers, project
managers, database experts, and business analysts for the new
facility which will concentrate on research and development.
U.S. Manufacturers have made great strides with lean manufacturing process changes. Lean manufacturing, originating from the Toyota Production System, is a production strategy that focuses on efficiency and creating the shortest possible cycle time. This is achieved by eliminating waste, optimizing work flow, and reducing incidental work.
Once the lean process is executed at a manufacturing plant the facility typically has excess capacity and the knowledge and expertise to re-source key processes back to the U.S. or commence entirely new value added manufacturing process for either existing products or new products.
During the economic downturn many U.S.
manufactures used the opportunity to greatly increase
automation, including robotics supported by large stimulus
provided bonus deprecation tax savings . U.S. manufacturers
are also quickly implementing new 3D printer design systems
which enable them to design new and more complicated products
and sub components at a fraction of previous new product
design costs . Virtually every manufacturing plant we visit
has already purchased a 3D printer and is often in the process
of buying more of them.
As this article goes to press, the U.S. auto industry has strongly rebounded and is operating at the highest capacity levels ever achieved. Ron Harber, of consulting firm Oliver Wyman, said "There has never been a time in the U.S. Industry that we've had this high a level of capacity utilization". A strong auto manufacturing sector has led to the revitalization of auto parts suppliers, including electronics part suppliers and employee benefit providers, especially medical insurance. The increasing percentage of new, high tech electronic equipment is supporting innovation in that sector.
The Boston Consulting Group forecasts that American companies will repatriate between 2 million and 3 million manufacturing jobs and add $100 billion to economic growth by 2020. Tax advisers knowledgeable about the U.S. R & D tax credit can help accelerate this important development which is crucial to our nation's future.
Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.
Andrea Albanese is a Manager with R&D Tax Savers.
Charles G Goulding is a practicing attorney with experience in R&D tax credit projects for a host of industries.
