WASHINGTON (Reuters) - Big U.S. manufacturers moved their production out of the country too quickly over the past decades and now see a competitive advantage in building up their footprints back home, top executives said on Monday.
The chase for lower-paid workers drove the migration, which resulted in employment in the U.S. manufacturing sector falling by 40 percent from its 1980 peak. But big companies including Boeing Co (BA.N) and General Electric Co (GE.N) are now finding that the benefit of lower wages can be offset by higher logistics and materials costs.
“We, lemming-like, over the last 15 years extended our supply chains a little too far globally in the name of low cost,” said Jim McNerney, chief executive of world No. 2 planemaker Boeing. “We lost control in some cases over quality and service when we did that, we underestimated in some cases the value of our workers back here.”
McNerney spoke at a Washington event organized by GE aimed at promoting the competitiveness of the U.S. economy. The nation has been slow to recover from a brutal 2007-2009 downturn and high unemployment — 8.3 percent in January — stands as one of the main barriers to a brisker recovery.
Boeing in particular ran into extensive delays in the launch of its 787 Dreamliner aircraft, handing off much of the manufacturing responsibility to outside suppliers, leaving the launch of the fuel-efficient aircraft some three years behind schedule.
“You are going to see more (manufacturing) come back to the United States, and that’s in part for business reasons and in part because we want to be good citizens,” McNerney said.
GE CEO Jeff Immelt said the largest U.S. conglomerate’s thinking evolved on the value of manufacturing inside the United States versus outside it.
“We’re basically moving our appliance manufacturing back from Mexico and China to basically Louisville (Kentucky),” he said. “When we looked at it on a cost basis, our labor is still higher, but it’s closer than it’s been in the past. And both materials and distribution are less expensive in the United States than imported. So we see the opportunity to bring jobs — certain jobs, not every job — back. And we think this is going to take place in areas like software as well.”
The nascent resurgence in U.S. manufacturing — which added 50,000 jobs in January — has caught the attention of the White House. President Barack Obama, to whom Immelt is a top adviser on jobs and the economy, singled out the sector in last month’s State of the Union address as an area where he would promote tax breaks in hopes of generating more jobs.
Noting that GE currently generates about 60 percent of its revenue outside the United States and that some 70 percent of the orders in its backlog are from abroad, Immelt said that multinational manufacturers need to add jobs both at home and overseas if they are to be competitive.
“Globalization is a 20-minute discussion in a world that wants one-sentence answers,” Immelt said. “We have to say where we’ve been right and where we’ve been wrong but it’s a nuanced discussion.”
He also defended federal efforts to promote U.S. business interests overseas, such as the U.S. Export-Import Bank, which some conservative groups have criticized as amounting to “corporate welfare.
Fairfield, Connecticut-based GE said at the event that it plans to hire some 5,000 military veterans over the next five years. Manufacturers say they like to hire veterans because their experience in figuring out how to solve problems quickly is useful in high-speed modern factories.
CEOs said they are looking for workers — some 600,000 U.S. manufacturing jobs are going unfilled because companies cannot find applicants with the skills needed to perform them, according to a study by the Manufacturing Institute and Deloitte. A renewed focus on educating students in science, technology, engineering and math could help fill those holes, executives said.
“It’s a jobless recovery in some sense, but we have jobs out there, so it’s the skills discussion,” said Andrew Liveris, CEO of Dow Chemical Co (DOW.N).
Former Mississippi Governor Hayley Barbour, whose state has grown its manufacturing base over the past decade, said the United States needs to do more to “destigmatize” the sort of technical education that would prepare Americans to take those jobs.
“We have a very anemic recovery,” Barbour said. “On Main Street, it’s very hard to tell the difference between the recession and the recovery.”
Reporting By Scott Malone; editing by John Wallace and Matthew Lewis