Is ‘Made in America’ the Right Model for Your Manufacturing Business?
Customer preference for American-made products isn’t new. Whether it’s due to strained supply chains or customer preferences, many manufacturers have made the decision to move from overseas suppliers to domestic factories. But higher labor rates and overhead costs may cause some “homegrown” products to be more expensive than foreign-sourced products. Will your purchasers balk at the higher price tag?
Manufacturers and distributors should weigh whether a made-in-the-USA strategy will help attract customers. Here are some angles to consider to position your business accordingly.
What Are the Rules?
To claim a product is “Made in the USA,” you must comply with strict regulations enacted by the Federal Trade Commission (FTC). Under these rules, final assembly must take place on U.S. soil and the majority of total manufacturing costs must be spent on U.S. parts and processing. Complex labeling standards may also apply if an American flag or map is used on packaging to imply the country of origin.
A company can make a qualified claim when a product is made in several countries, however. For example, it may specify the percentage of a product’s domestic content or label a product as “assembled in the USA” instead.
Compliance with these rules is essential when starting new advertising programs or repackaging with a “made in the USA” label. False claims are likely to attract an FTC investigation, which could lead to enforcement actions and negative publicity. Violators also may need to modify packaging to comply with the FTC regulations, which can be another costly expenditure.
Click here for more information from the FTC.
What Are the Benefits?
Deciding to have your product “made in the USA” will undoubtedly benefit domestic manufacturing. Prepare by investing staff, inventory and equipment to meet increasing demand for domestic-made products. Remind your customers about the benefits of using domestic manufacturers. Here are just five benefits:
1. Less expensive and more reliable shipping. Tariffs and high shipping costs may make overseas production cost prohibitive. And volatile foreign political environments may prevent products from shipping on time, leading to production delays.
2. Domestic labor force. Many people feel patriotic when they support the U.S. economy and create jobs for American workers. They also want to know that factory workers aren’t subjected to unsafe conditions, low wages or other forms of exploitation that the U.S. Department of Labor, state agencies and domestic labor unions protect against.
3. Limiting business risks. Intellectual property theft and devaluation of the U.S. dollar are just some of the risks companies face when they outsource production to other countries. Additionally, important instructions — such as product specifications or shipping terms — may be lost in translation when communicating with foreign suppliers.
4. Product safety. News stories about contaminated plastic and pet food products from China have led to recalls, illnesses and even deaths. Products made under the scrutiny of the U.S. Food and Drug Administration and Departments of Commerce and Agriculture are typically held to higher quality standards than many foreign-made products. Safer materials and products give manufacturers peace of mind that they’re not exposing end-users to unsafe products — and themselves to liability claims.
5. Environmental effects. The U.S. Environmental Protection Agency also requires manufacturers to adhere to strict environmental standards that limit emissions and pollutants. Other countries, including China and India, are making huge carbon footprints today that will harm the environment for many years.
Is It Time?
For manufacturers that have used overseas suppliers, deciding when and whether to return to U.S. factories and suppliers can be a tough decision. If you do make the move, consider implementing a marketing campaign that positions your products as American-made, whether you sell to businesses or consumers. Provide specific details on all the reasons why customers should choose you.
For example, Liberty Tabletop, which is the only flatware manufacturer in the USA, explains on its website that the steel in its products is the “tested for lead and other toxic trace elements to ensure they are not present.”
It adds: “When you choose us, you’re choosing a company that believes in growing our national economy, providing career jobs to people in our community and preserving the craft of flatware manufacturing and tool making. Liberty Tabletop is also socially conscientious – we know that foreign companies don’t follow the same rigorous standards as we do here in the United States, and often resort to child labor, prison labor, abuse of workers and unsafe conditions for workers in terms of health and safety…”
Why Some Manufacturers Are “Reshoring”
In recent years, there has been a reshoring trend among U.S. manufacturers. The Reshoring Initiative, a nonprofit organization, estimates that from 2021 to 2022, new U.S. jobs from reshoring and foreign direct investment increased by nearly 35%.
The COVID-19 pandemic exposed supply chain risks associated with offshoring. For some manufacturers, reshoring helps avoid supply chain disruptions and reduce transportation and shipping costs. Other factors contributing to reshoring include:
- Incentives for domestic manufacturing, including the federal CHIPS and Science Act and the Inflation Reduction Act, as well as state and local incentive programs designed to attract businesses,
- Wage inflation in foreign countries, which reduces the benefits of offshoring,
- The U.S.-China trade war, which has resulted in tariffs and other restrictions that increase production costs for U.S. manufacturers,
- Increasing political and public pressure to keep manufacturing jobs stateside, and
- Desire to gain more control over product quality, improve responsiveness to customers, and support national and local economies.
Another option is “near-shoring” — that is, relocating manufacturing operations from across the world to a nearby country, such as Mexico or Canada. Near-shoring to Mexico, for example, may provide many of the benefits of reshoring, including reduced supply chain risk, while providing access to a skilled, but perhaps more cost-competitive, labor pool.
Bringing operations back to the U.S. isn’t without its challenges, such as a shortage of skilled labor. One way to address this problem may be to embrace new technologies — such as automation, robotics, the “internet of things” and artificial intelligence — to boost your workforce’s efficiency and productivity.
Another challenge is the cost and risk associated with relocating. For example, many experts advise manufacturers relocating from China to leave before announcing the move. Otherwise, their intellectual property and other assets — including personnel — may be at risk.
Manufacturers contemplating making products in the USA or reshoring should evaluate the pros and cons. Although domestic manufacturing may not immediately be the lowest cost option, the benefits of greater control and reduced risk may justify the investment. Your CPA can help you weigh the options.
This article appeared in Walz Group’s October 30, 2023 issue of The Bottom Line e-newsletter, produced by TopLine Content Marketing. This content is for informational purposes only.
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