December 30, 2010    Volume 17, No. 20

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The United States Is Not The Place To Build A New Factory, According To Manufacturing Council Members


By Richard McCormack
richard@manufacturingnews.com

American companies are still not selecting the United States as a place to build new manufacturing plants, members of the federal government's Manufacturing Council told Commerce Secretary Gary Locke. Companies would like to be patriotic and locate new production in the United States, but the country does not value manufacturing and its cost structure is not competitive, according to the two dozen members of the recently reconstituted Commerce Department advisory board.

American Superconductor Corp. has achieved success by focusing on the Chinese wind turbine industry. The Boston-based company has added 750 jobs over the past four years in its electrical control and wind turbine divisions through its so-called "Dragon Project," the company's strategy to penetrate the Chinese wind turbine market.

"Our real challenge now is how do we take what we've been able to have success with in Asia and bring it to America," said American Superconductor President Dan McGahn. The company has created 250 jobs in China serving the Chinese turbine industry. Its direct Chinese partners have created an additional 5,000 jobs, "and through the supply chain that we helped to establish, it's about 50,000 jobs, again, in China," McGahn told a recent meeting of the Manufacturing Council in Washington, D.C.

"We've started to embark this year on a new project called Project Eagle, which is to do the same in America," McGahn told Locke, who attended the Council's two-and-a-half-hour-long meeting. "I understand how China works. I understand where to go. I understand how to enable it. But frankly speaking, Mr. Secretary, I don't know how to do it in America. I don't understand the regulatory framework. I don't understand what our energy policy is."

American Superconductor Corp. has worked with Chinese heavy industrial companies and enabled them to compete in the wind turbine business. "We are actively looking to bring our Asian brands from India, Korea, and China to help them set up manufacturing bases in the U.S., but we also want to try to take existing heavy industry companies in this country and enable them, through working with our company, to make wind turbines. It sounds all great. We know how to do it in Asia. I don't know how to do it fully in America."

Manufacturing Council member Nucor CEO Dan DiMicco responded to McGhan's lament. "There is something wrong" when a high-tech American company can go to China with a "Dragon Strategy" and work with the Chinese government, but when McGahn tries to do the same thing in the United States, "he's lost" DiMicco said. Like American Superconductor, Nucor does not see that the United States government understands the need for a manufacturing base. "We've got a group of people [in the private sector] who really want to make a difference and raise manufacturing up in this country, but then we don't have a coordinated effort across all of the departments in our political leadership to make sure that that happens," said DiMicco.

He then asked Commerce Secretary Locke: "How many times at your cabinet-level meetings do you say, 'How does this affect manufacturing? What's this going to do for manufacturing and job creation?' That's not happening. If it was, we wouldn't be burdened with some of the really tough, miniscule regulations."

By not addressing high cost structures in the United States, the country is losing out to imports. The U.S. steel industry is running at only 50 to 70 percent capacity, yet 30 percent of the market is being served by imports, DiMicco said. "There is something wrong here and we can't export because of the barriers around the world [that add] a 30 percent tax on our products when they [are shipped] to places like China, South America and Brazil." The Obama administration can talk about increasing exports, "but for Pete's sake, we're the world's largest export destination and we can't compete here at home," DiMicco fumed. "There is something wrong."

First Solar is another U.S. company that has been forced to produce outside of the country. Its CEO, Bruce Sohn, chairman of the Manufacturing Council, told Locke that manufacturing drives national economies by creating jobs and expertise. For First Solar, this is not happening in the United States. "As head of a manufacturing company, we go through the debates about what do to with manufacturing, where to go, every day. It's been a significant debate at First Solar over the course of the last several months."

First Solar is growing fast, with sales projected to increase from $2.6 billion in 2010 to $3.9 billion in 2011. Demand for First Solar's products is outstripping its manufacturing capacity. The company in 2010 increased production capacity for photovoltaics to 1,430 megawatts, double its capacity in 2008 of 716 megawatts. But only 238 megawatts of that capacity is in the United States, a level that will stay the same through 2012 when the company expects to again double capacity to 2,742 megawatts. Most of its output will be in Malaysia, with additional facilities in Germany, France and a new factory in Vietnam.

Stryker Corp. CEO Steve MacMillan had a similar story to tell. He said his Kalamazoo, Mich.-based company, which has 19,000 employees and $7 billion in revenue, has opened three plants in Switzerland, three in Germany and three in Ireland. "Simply put, we built a plant in Neuchatel, Switzerland, a few years ago not just for low wage rates, but because of low tax rates," said MacMillan. The company, which makes orthopedic implants and other medical devices, found the 35 percent corporate tax rate in the United States to be too high, especially compared to the 10 percent rate in Switzerland. "It's a 25 percent overcharge here," MacMillan said. "These are highly-skilled, precision manufacturing jobs that we would love to have here."

The cost situation is getting worse in the United States with health care reform, MacMillan noted. Stryker Corp. "is now subject to a 2.3 percent excise tax on every dollar of revenue we sell in the United States starting in 2013," he said. "For us as a company that's $150 million in additional taxes when we go from 2012 to 2013. That is a disincentive to growing our business in the United States because outside the United States we are not subject to that."

Foreign nations are doing everything they can to attract American manufacturing companies like Stryker, MacMillan added. Places like Ukraine and Poland do not burden companies with over-zealous regulations. The Department of Justice, the Internal Revenue Service and the Food and Drug Administration, along with onerous laws, discourage companies from operating in the United States.

"I'll quote George Buckley, the CEO of 3M," said MacMillan. "He [made] a great comment to me about a year ago, and he's British, for the record. He said: 'I've never lived in a country where you feel like the government is on the other team's side.' " The regulatory agencies "are enforcing a level of regulation on U.S. companies that they are not enforcing on European companies or on other companies. We have companies in our industry that actively count the fact that they don't belong to the U.S. trade association because it means they can play by a different set of rules in this country. That is very troubling, to feel that the U.S.-based companies are at a competitive disadvantage in our own country."

Companies continue to shift production offshore due to regulations, taxes and an overall negative business climate in the United States, added Greg Bachmann, CEO of Dymax Corp. of Torrington, Conn. Dymax sells industrial adhesives, sealants and coatings to manufacturing companies. "If I look at the root of the issue here in the United States, manufacturing is on the ropes," said Bachmann. "I'm still following my customers overseas. I have great customers in the United States. They're still relocating. I have an expensive business model because I have to follow them to where they go."

The company's exports are up by 90 percent, mainly because its customers have left the United States, "and I'm following them to where they are going," said Bachmann. "If I look back at the root [cause], what is the image of business in the United States?" he asked. "It's pretty negative. When people choose careers, are they choosing a career in manufacturing? Are they choosing a career in engineering? Who are our heroes? Are our heroes lawyers that go after bad businesses? It's not business." The predominant business climate in the United States for decades "is high-tax, high regulation, high liability," said Bachman. "What message do we send to the United States about business in general? It's really been kind of a death by a thousand cuts."

One member of the Manufacturing Council, Chandra Brown, president of Oregon Iron Works and United Streetcar, praised by Buy American laws for helping revive the U.S. streetcar industry. "Folks like Boda Doors [from China] and folks from Germany are looking at moving here now because of Buy American laws, because they want to have a U.S. manufacturing presence and supply it to the American-made companies and the Buy America market," she told the Commerce Secretary. "It's been wonderful overall."

Sec. Locke sat through the executive presentations, thanked them for being involved and then said: "We need you to prioritize. We need you to continue emphasizing the various issues that you continue to raise and have raised and that we've heard about for many, many years."

He asked that they "somehow crystallize" their work in specific recommendations "so that more people hear it." Locke pledged to take a consensus report from the group and "advocate vigorously on your behalf."

The council will meet again on January 12 at the Hilton Garden Inn, in Perrysburg, Ohio. "No time will be available for oral comments from members of the public attending the meeting," says the meeting announcement. "Any member of the public may submit pertinent written comments concerning the Council's affairs at any time before or after the meeting."

For information, contact Manufacturing Council Executive Secretary Jennifer Pilat at 202-482-4501 or Jennifer.pilat@trade.gov.


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