Shortage of skilled workers could limit growth
Nearly written off after decades of stagnation, job losses and overseas outsourcing, the "Made in the U.S.A." label is poised for a comeback.
A retooled domestic workforce, paired with rising wages abroad, could lead to a renaissance in U.S. manufacturing within five years, according to a recent study by the Boston Consulting Group.
Whether Chicago can gear up its dwindling skilled labor force in time for the projected surge in homegrown production remains to be seen.
"There is a shortage right now, and there is quite a projected shortage of people to fill these types of jobs into the future," said Jeff Owens, president of Advanced Technology Services, a Peoria-based company that provides maintenance staffing and support to large manufacturers such as Caterpillar, Motorola Solutions, Motorola Mobility and BorgWarner.
That the long-dormant sector is facing a potential dearth of qualified employees is at once puzzling and promising. Drawn by cheap labor, U.S. companies have been steadily setting up shop overseas since the 1980s, mostly in Asia. The process ramped up considerably in the last decade, as the awakening Chinese economy became the destination of choice for a wide range of manufacturers.
While U.S. manufacturing output is nearly 2.5 times greater than it was in 1972, jobs have declined by more than 30 percent in that span, according to the Boston Consulting study. But with wage rates in China growing at 15 to 20 percent a year and transportation costs climbing, the advantage is swinging back stateside, where worker productivity makes U.S. factories more efficient.
"The fundamentals have shifted, and the economic difference will be a lot smaller," said Harold Sirkin, a Chicago-based senior partner of the Boston Consulting Group and lead author of the study. "People are starting to think about, rather than building plants in China, to build them in the U.S. to produce product for the U.S."
With government incentives sweetening the deal, Sirkin expects the net labor costs to converge by 2015. A number of companies are ahead of the curve, including California-based toymaker Wham-O, which last year returned 50 percent of its Frisbee and Hula-Hoop production from China and Mexico to the U.S., said Sirkin.
Downers Grove-based Dover Corp., a publicly traded industrial conglomerate with $7.1 billion in annual revenue, maintains a similar manufacturing mix across its diverse product line.
Dover, which moved from New York last year, oversees 35 companies producing nearly 200 brands, everything from gas-pump nozzles to refrigerated grocery cases. Local operations include Skokie-based Midland Manufacturing, which makes valves for tanker trucks and rail cars, and Knowles Electronics, of Itasca, which makes most of the microphones for iPhones.
About half of Dover's products are made in the U.S., a percentage that used to be much higher, said Robert Livingston, the company's chief executive and president.
"If you go back to the late '80s, I don't think we had a single manufacturing facility outside of North America or Europe," said Livingston, 57. "It was really in the mid-'90s when we started to see the real migration of electronics manufacturing to Asia."
While concurring with the projected renaissance in U.S. manufacturing, Livingston said the study doesn't take into account U.S. companies that build in China for the growing Chinese market.
"We have not built a factory in the last seven years for the purpose of manufacturing the product in China and exporting back to the states," he said. "We've been building our operations in China to serve our local customers and the manufacturing base that is in Asia."
But the growing domestic consumption in China also could be a boon to U.S. manufacturing, said Livingston.
"In the first quarter, our revenue in China increased 60 percent, year over year," he said. "A third of that revenue in China is actually produced at manufacturing facilities here in the states and exported."
In the first quarter, Dover added 1,500 employees, an increase of nearly 5 percent. About 600 came to Dover through acquisitions, with 900 new hires split evenly between the U.S. and Asia.
As production ramps up locally, getting qualified help could prove problematic. Working with 25 major manufacturers in 40 states, Mexico and Britain, Advanced Technology Services is heavily invested in finding and training its 3,000 or so employees. A three-tiered approach includes community college programs, retraining of recent military veterans and recruitment of laid-off personnel.
Launched as a subsidiary of Caterpillar Inc. in 1985, the now private company has grown at a 20 percent annual clip since its inception, making skilled labor its most valuable commodity. For manufacturers that haven't hung out a help-wanted sign in years, a graying workforce could mean big headaches going forward, said Owens.
"The average age of most people working in these high-tech jobs in manufacturing is in the 50s," Owens said. "There's really not been a lot done to make sure that there's a younger generation ready to step into the shoes of these guys who are nearing the end of their careers."
Exacerbating the problem is the continued migration of jobs and factories to cheaper right-to-work states in the Southeast, said Owens. Experienced workers are less likely to move, making the need for a younger, more mobile workforce more acute.
After an exodus of factories and jobs in the '80s and '90s, manufacturing in Chicago has stabilized in recent years, with some 7,000 mostly smaller companies scattered throughout Cook County alone, according to officials. Reviving that base may depend on having a highly skilled local workforce at the ready.
Hoping to put Chicago at the center of the manufacturing rebirth is the aptly named Chicago Manufacturing Renaissance Council, a coalition of business, labor, government and community leaders formed in 2005. Among its initiatives was the creation of the Austin Polytechnical Academy in 2007 to train 330 high school students for careers in advanced manufacturing.
While the West Side school is on academic probation with Chicago Public Schools, which will help it craft an improvement plan, council Executive Director Dan Swinney hopes to see it rolled out to other high schools and the city colleges system.
"We need to upgrade and expand our educational infrastructure, as well as our attitude toward this," Swinney said. "People need to start talking about manufacturing as our future, not just something of the past."