Flight of Factories to China and Pacific Rim

The trend of “offshoring,” where U.S. industrial manufacturers move factories to China and less-expensive offshore locations is affecting the electrical wholesaling industry on several fronts.

Electrical distributors and independent manufacturers’ reps are seeing long-time industrial customers move out of their markets. Electrical manufacturers, confronted by a profit squeeze and the need to manufacture products as competitively as possible, are moving much of their manufacturing to China.

A sizable 54 percent of respondents to a recent survey by the National Electrical Manufacturer’s Association (NEMA), Rosslyn, Va., reported they were sourcing products or components from China that were previously manufactured in the United States. Additionally, 34 percent of respondents reported they were sourcing products or components from China that were previously sourced from another country.

The electrical products most frequently sourced from China? The survey identified components, electronics, building equipment and lighting products. Companies also mentioned sourcing molded-plastic, printed circuit boards, metal castings, sub assemblies, stampings, cords, motors, machined parts and batteries.

Production costs in China were an average of 27 percent less than in the United States, according to the companies responding to the survey. “Obviously, that’s a significant incentive for sourcing from China,” said Don Leavens, NEMA vice president and chief economist.

In Electrical Wholesaling’s cover story this month, electrical manufacturers, electrical distributors and independent manufacturers’ reps report on their experiences with this troubling trend. The news isn’t good.

“Many factories have either closed, bankrupted, grossly downsized, or turned their manufacturing operations into warehouses for Chinese purchased goods,” said Arnold Jones, president, Williams Supply Inc., Roanoke, Va. “Henry County to the south of Roanoke, which used to boast the highest industrial population per capita in the state of Virginia, now has unemployment rates in the 20 percent range.”

Williams Supply’s remaining industrial customers, for the most part, aren’t spending capital dollars. As a result, Williams Supply is enduring some tough times.

“We continually look for ways to reduce costs and maximize efficiency and productivity,” said Jones. “Everything is looked at.”

The electrical distributor closed two of its smaller branch operations, leaving the current count at five Virginia locations. Sales staff was retained, though, except where attrition provided an opportunity to reorganize.

“It’s plain to see that due to global economic and socio-political forces, our country is losing its competitive edge in manufacturing,” said Jones.