Unionwear President Mitch Cahn’s 15 Minute Ted Talk–Made Right Here: How the international worker rights and buy local movements are creating a surge in U.S. urban manufacturing opportunities. The talk discusses why the premium for domestic goods are shrinking, and the five types of business to business to market segments with strong convictions about buying USA Made.
Manufacturing is booming in Newark and other American cities after decades of decline.
Newark, NJ has over 400 active factories within the city limits that employ over 10,000 people. Four years ago nobody knew this, now a growing number of people know this. How did this happen in the middle of a recession? Well, as a manufacturer, I can’t say it was anything that our industry did. I am pretty sure it wasn’t anything that our government did. And I don’t think it was a wave of made in USA consumerism that pushed us over the edge.
What happened was over the last 20 years, goods have been made overseas in the third world very, very cheaply on the backs of exploitation of labor and exploitation of the environment. The growth in manufacturing now is because both “overseas” and “exploitation” have become a lot more expensive and a lot less attractive.
Activists did this–labor activists did this, unions, worker rights coalitions and environmental and buy local activists made this happen. They raised awareness, they localized supply chains and they helped to impose regulations creatively. And as a result we’ve seen what’s going on in Newark right now. “Made in USA” has relatively become a bargain. Cities like Newark are reaping the benefits because we have an infrastructure in place still from the 70’s and before that, we have a lot of concentrated labor and we are in the center of a transit hub. We have the ability to move people and goods around very quickly. We are within a day’s drive for something like a third of the population.
What I want to do now is talk about my experiences running Unionwear, which is a manufacturer of baseball hats, bags like backpacks and garment bags, safety vessel scrubs. We manufacture everything from scratch right here in North Newark. We have about a 110 union workers, we are 11 miles from Midtown Manhattan. We have been in business for 21 years. In almost every product category of ours, we might be the most expensive place to make that product in the entire world. So how is that over the last four or five years we’ve grown by about 25% per year after about a decade of being flat.
Well we’ve narrowed it down to five areas. One is market forces, specifically understanding the market forces that are going on and being able to educate our clients about it. How is Obama care going to affect domestic manufacturing? How is immigration policy going to affect in manufacturing. What if China decides to float their currency against the United States? Is that going to make United States manufactured goods less expensive? And more appealing to the rest of the world? Yes.
We stay on top of these things and we make sure clients know about them because changes in the economy happen right under people’s noses and they don’t even see it.
Market selection is a big one. There are markets that want to buy local. There are markets that want to buy made in USA. It’s more expensive to buy those things but they are willing to pay a premium. Who are those people and how do we reach them?
Product selection is an area that goes along with market selection. Now someone might not be in a market that wants to buy made in USA but they might want to be a product that might be less expensive to manufacture in United States, so what are those products?
Re-engineering is important because it’s very different to manufacture a product where there is no regulation and people are paid ten cents an hour versus where it is manufactured in an area where there is a lot of regulation and people make 10 to 15 dollars an hour. You can bridge that gap through smart re-engineering.
Finally we take advantage of our geographic advantages. We play up how close we are to New York City and Newark airport and port Newark and millions of skilled laborers.
So I am declaring right now the era of cheap imports is over. It’s dead.
So what’s happened as the price of imports increases is the premium paid for made in USA product shrinks. As that premium shrinks it becomes less expensive for people to have sourcing standards or enforce standards that they already had. So what happens and why the market is grown is there are a lot more people who are willing to pay 25% more for a product that’s made green, made in USA, made union, then they were in 2008 when it might have been 200% or 300% more expensive for that same thing. And it is that a big of a difference.
So one reason for this is labor supply and demand. China has had decades of a one child policy, and as a result there are a lot fewer people entering their workforce now and the people who are entering the workforce, they don’t want to make the iPhone, they want to work for Apple. So there are not enough people working in these factories–when that happens you have to pay people more to get them to work in manufacturing.
As a result of people being paid more there is now a consumer class in China and in India and in Pakistan. That’s driving up the costs of goods, its driving up the costs of gasoline, petroleum which is making goods more expensive to ship to United States.
I put a slide up of the iPhone factory because that’s an example of what has happened because of worker rights activists. When all of the working violations at the Foxconn factory where over a million people are employed were discovered, labor activists came in and negotiated a 40% wage increase and they lowered the amount of hours they can work from a 100 hours a week to 60 hours a week. They came in a year later and negotiated another 40% increase. You imagine what it does when a million people make that much more money. And have to work that fewer hours. They have to scramble the find workers. That’s why prices have been of imports have been going up so much.
And as a result of social media, the rest of the world’s workers are finding out what’s going on and realizing they don’t have to work this way. So you are seeing the same sort of riots, protests, strikes in Bangladesh and Pakistan. This has led to wage inflation of 25% to 30% a year. The response overseas has been to cut corners– poison in pet food, poison in dog food, exploding tires, broken plane parts, that’s led to more regulation which has put more expense on products that come in from overseas.
Companies have moved their manufacturing to places that they thought were cheaper than China like Bangladesh. But they didn’t have the infrastructure and ended up being more expensive. You ended up with month after month, factory fires and factory collapses which led to more regulation and more expense.
So who is buying made in USA, now that their premium has shrunk?
There are five different ways that people can say “buy local” and these are the markets that we try to appeal to. Buy American, people buy American for economic reasons, or if they have standards like the US government. Or if they want consistent messaging, like General Motors who makes goods domestically and they want to buy American-made goods because they are selling made American.
People want to buy union and support their fellow union workers.
People want to buy fair labor, they don’t want to buy goods that were made in a sweatshop.
People want to buy eco-friendly and people want to buy local.
So one of the of the areas that wants to buy American is the US government which makes up about a quarter of our GDP. This is something that is relatively new, this enforcement of the government buying American made goods.
Another area is trade justice and if you say the labels fair trade and sweat free and living wage on goods, those are all ways of saying that these goods were made by workers who are not exploited.
An example of someone who used to not buy products with these labels in is now is NPR. They would give away tote bags for memberships at the same time they were doing stories about sweatshops in China but the tote bags were made in those sweatshops because they get them for 25 cents a piece. Now it’s costing them $2.50 a piece to import. They are going to spring for $3 a piece and buy something that is made in USA and it basically cost less for them to put their money where their mouth is.
The link between fair labor and local and eco-friendly is this: The closer production is to consumption the less acceptable worker exploitation becomes. You don’t want to buy a shirt from someone around the corner who you know as working for below minimum wage and maybe working a 100 hours a week, but its okay if it is around the world.
Also the more likely that goods are produced using your labor and environmental standards. The factories are operating under the same laws that you benefit from.
Another area is product selection. So two examples of products that are less expensive to make domestically would be products that are big and bulky to ship and don’t have a lot of labor like this gigantic case right here that we make. That didn’t need to be made in USA but it is.
Or bags using expensive materials– this bag has $40 in leather in it but only maybe $8 in labor. In China maybe you can get it made for $4, so at the end of the day its $48 verses $44. By the time you ship it here and have the duties on it, its less expensive to make it in the United States. That’s why you see a lot of goods with expensive materials made in countries that are more expensive than United States like Italy.
So another area is small batch customization. There is a big overhead to making products overseas, you have to translate, you have to make tech packs. It is expensive to ship sampling back and forth, there are time zone considerations, so as result nobody wants to make 500 or a 1000 of something in China or Bangladesh. It’s a lot less expensive to make it here.
And finally re-engineering is the area where we are able to close the gap through product design. When we get goods a lot of times now people are reshoring goods–they send goods to us and it was a bag that they had made in China, they want to get it made in United States and I’ll say if you want it made exactly this way, its going to cost you $80 because there is no thought given to engineering the products because labor was practically free over there. We can redesign it so your clients won’t notice the difference that will be just as nice and we can do it for $15.
The other area is Lean Manufacturing and that is the concept where you can take people in a high wage environment and train them to use all of their time to just add value to the product and not waste time doing things that are not that the client doesn’t pay for, like looking for a pair of scissors or waiting for manager or walking from machine to machine.
So finally, Newark is a place that is perfect for manufacturing for a number of different reasons. We’ve got a high concentration of skilled labor, we’ve got a well developed infrastructure of manufacturing. There are lot of other manufactures here which means that there is a market for mechanics and trucks and things where that might not exist in an economy where there is not a lot of manufacturers. We are close to the port, we got Newark airport here and we’ve got access to everything. We have access to New York City we have access to capital, marketing, and technological expertise right here in the city of Newark through our academic communities.
There are other cities where this is happening. There are not a lot of rural areas where this is happening. So this is the time to take advantage of this once in a generation opportunity where people are coming to Newark to get things manufactured. Thank you very much.