Made in China? ...Maybe not

It all sounds depressingly familiar: Master Lock Co., in the throes of a restructuring and under shareholder pressure to control costs, has been shipping jobs halfway around the world. "We're strategically going at it, when it makes sense, where it makes sense," said Master Lock senior vice president Bob Rice.

In a new twist, however, it's China where Master Lock's costs are rising disruptively. The company has responded by pulling production back to Milwaukee, where the manufacturer of iconic padlocks was founded in 1921. Master Lock and other companies have begun to reassess China:

• Labor unrest rippling across China is pushing wages higher in a nation with a supposedly inexhaustible supply of cheap workers. Thirty provinces have raised their minimum wages in the past year, some more than 20%.

• Further inflating prices of Chinese imports, Beijing engineered a 20% weakening of the dollar against the yuan in the last five years, bending to pressure from Washington, which bristles at China's tight control over its exchange rate.

• Shipping rates from Chinese ports spiked fourfold in the 12 months through August to their highest levels in maritime history, according to Universal Cargo Management Inc. in Los Angeles.

Master Lock was bringing work back to Milwaukee during the recession, Rice said. The company's flagship industrial campus, with nearly seven football fields of unionized factory floor space, is at capacity for the first time in 15 years. "We're not done yet," said Rice, echoing economists and trade officials who expect Chinese wages to rise further as the dollar continues to fall. Whether it's called near-sourcing, on-shoring or re-shoring, America's outsourcing infatuation with China has cooled a few degrees.

General Electric Co., which exports water heaters from China to the U.S., is preparing to add water-heater production later this year at its Louisville, Ky., plant, the first new product added there in 50 years. Wham-O Inc. is shifting a share of its Frisbee and Hula Hoop production back to the U.S. "The main reason is cost of production," said Wham-O chief executive Kyle Aguilar. "We are making progress toward our goal of producing half of all Frisbee discs in the United States."

No one suggests that America is on the brink of a manufacturing renaissance, or that the reverse flow of jobs is anything but a trickle. But the jobs that flow against the tide reflect a slight but hopeful tilt in the trade equilibrium. "One thing is certain," said Pieter P. Bottelier, senior professor of China studies at Johns Hopkins University in Washington, D.C. "Production costs in China are on the rise for various reasons, including unit labor costs, energy and transportation, taxes, land and China's real exchange rate. This will help the U.S. to regain competitiveness in several industries."

As Rice selectively shifts production back home, mainly in the form of combination locks, subassemblies and keys, Master Lock has added some three dozen jobs in Milwaukee in recent years, bringing total factory head count to 379. That compares to 1,300 at its peak in the early '90s before the company was blindsided by a proliferation of low-cost Asian copycats. That sent Master Lock into China in 1993 and then into Mexico. "We went there in survival mode," Rice said of the early outsourcing. "We're businessmen. We do what's right for this company."

Milwaukee's industrial history is littered with empty factories, many in the vicinity of Master Lock. Ensconced in one of the nation's poorest inner cities, Master Lock's formula for job creation is a combination of high volumes and as much automation as it can afford, Rice said. Often no more than a single technician oversees multiple banks of automated equipment, capable of shaping parts within one-3,000th of an inch. Master Lock's system produces a shiny new combination lock every 2 ½ seconds, each with a unique six-digit combination printed on a sticker on the back.

By John Schmid of the Journal Sentinel
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