‘Made in USA’ starts to make a return

In the wake of a decades-long manufacturing exodus overseas, the climbing cost of outsourcing has some U.S. companies looking homeward.

The gap between the cost to produce goods in the United States or to produce them abroad has narrowed, thanks to a decrease in China’s competitive advantage.

The Chinese yuan has appreciated 18 percent against the dollar in the past three years, making exports more expensive and less competitive. Chinese wages have more than doubled over the past five years, and the Chinese government has lowered or eliminated tax breaks on exports.

Meanwhile, oil prices have soared from $25 a barrel in 2002 to more than $125 today, discouraging American businesses from shipping manufacturing operations overseas.

“The days are over where you just think you can go over to China to get something cheap,” said Harry Kazazian, chief executive officer of Exxel Outdoors Inc., a Haleyville, Ala., producer of outdoor recreational gear.

Exxel has been doing just that since 2005, when executives detected the beginnings of a market shift favoring homemade wares.

“It’s kind of like the light bulb goes off in your head,” Mr. Kazazian said.

“We really need to come back,” he told Exxel President Armen Kouleyan while they toured their production plants in China.

Colleagues raised their eyebrows at the plan, but Exxel soon began investing in its Haleyville, Ala., factory in preparation for a move back to the United States. The company increased the American portion of production of its best-selling family sleeping bag from 40 percent to more than 60 percent, said Mr. Kazazian. He plans to increase that to 90 percent by 2010. The company will produce 1.5 million sleeping bags this year and expects to make 2 million next year.

“We’re kind of on the front end of the trend,” Mr. Kazazian said, explaining that by maintaining its U.S. factory when other companies closed their domestic plants, Exxel avoided huge startup costs and delays when it decided to repatriate production. “We wanted to keep our options open. Whether you call it hindsight or you call it good fortune, I think that is why we’re ahead of the curve.”

No hard data are available to document the shift back to U.S. factories, said NAM Chief Economist David Huether. But a second-quarter NAM survey of 314 member companies showed that 59 percent of respondents have seen “increased costs of materials and supplies imported from abroad” and 30 percent are purchasing more supplies from domestic sources.

Mr. Kazazian said he thinks outsourcing has peaked.

Factory owners might wait and watch price trends before shifting to domestic manufacturing on a large scale, said Hank Cox, vice president of communications for the National Association of Manufacturers.

“For them to turn around and say, ‘Oops, mistake,’ that takes a lot of money to bring production back here,” he said. “It’s not just something you can do at the drop of a hat. These factors would have to continue for a while before you would see a tipping point.”

Still, economic forces make it more attractive for an increasing number of manufacturers to move toward more domestic production, Mr. Cox said. Although factories won’t gear up overnight, the sustained increases in oil prices - and shipping costs - are bringing the change closer.

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