Business leaders say cost-saving opportunities are plentiful without resorting to sending jobs overseas
Clifford Anthony
Business Writer
Is offshoring the only answer to shore up the bottom line?
Nope. There are alternatives, according to area business owners and management consultants.
Production costs can be contained by easing government regulations and by offering incentives, as is done in other countries, according to area industrialists.
U.S. manufacturers could compete with China, Taiwan and other countries if wages were the only consideration, said Roger Sustar, president of Fredon Corp. in Mentor.
"Our guys can compete with anyone in the world," Sustar said.
America’s high technology gives an advantage to area industries over their counterparts abroad, he added, Manufacturers here are capable of producing goods in large quantities in a limited time because they don’t rely on much more laborious techniques used in other countries.
"We are leaps and bounds ahead of them," said Sustar, who recently returned from Thailand. Machinery used in Thailand is" "old and junk," compared with the equipment seen at area companies.
"But they don’t have to pay federal, state and city taxes," he added.
Recently, Fredon received a federal subsidy in the form of 50 percent depreciation on a new machine the company purchased. The incentive was designed to encourage companies to buy capital equipment, which in turn will bolster the manufacturing sector.
But the state didn’t allow the depreciation, which increased Fredon’s tax base.
"Then, our unemployment payment went up by 37.5 percent," said Sustar, whose firm has a work force of 50. "What the federal government gave me, the state took it away."
Government regulations have a big impact on pricing, added Rich Wilson, partner of Matrix Tool and Machine Inc. in Mentor.
Wilson, who has a work force of 28, said he pays about $20,000 a year in workers’ compensation alone.
Regulations imposed by the Environmental Protection Agency, the Occupational Safety and Health Administration and other such agencies add up to the production cost, according to Wilson.
"Other countries don’t have such regulations," Wilson said.
During a recent visit to a factory in the Czech Republic, Wilson said he noticed workers hand-blowing glasses without the safety goggles that are mandatory here.
"They were wearing shorts and sandals, and were smoking and drinking beer," he said.
"China is one of the biggest violators when it comes to ecological preservation. They don’t have the regulations and the cost associated with it," Wilson said.
Government regulations alone average about 12 percent of overhead expenses, according to data compiled by Manufacturers Alliance based in Arlington, Va.
Tort litigation and corporate taxes account for another 7.8 percent.
External overhead cost burden is at least 22 percent of unit labor costs of U.S. manufacturers, said Jeremy A. Leonard, consultant for the alliance.
"External overhead costs on" U.S. manufacturers are almost as large as total manufacturing costs in China," Leonard said."
Some government requirements are outdated, he said.
Matthew B. Coffey, president’ and chief operating officer of the National Tooling and Machining Association in Fort, Washington, Md., agreed.
Foreign manufacturers get a built-in 20 percent price advantage due to U.S. regulations.
They also receive government subsidies that help lower production costs.
"In the ’50s and the’60s, Japan, competed against us," Coffey said. “But Japan didn’t allow foreign investment."
Today’s major competitor is China, which permits outside investment.
"Investments are pouring money in China, making them a powerhouse," he said.
U.S manufacturers’ concerns are legitimate said U.S. Rep. Steve LaTourette.
"Over-regulation can add 15-20 percent to their production cost," the Concord Township Republican said. "It shouldn’t be that way."
LaTourette said a few regulations, such as for workers’ safety, are required.
"However, regulations should be based upon sound reason and experience.” He said “But a number of regulations are based on neither."
LaTourette said since 1995 he has been attempting to restructure some of these rules.
The congressman said he is pushing for the passage of a Regulatory Relief Bill, which is under discussion in Congress. The bill calls for a review of regulations, and the elimination of obsolete ones.
To alleviate financial burden on business owners, State Rep. Ron Young said he introduced legislation in Columbus that would streamline workers’ compensation. House Bill 435 would safeguard the system from abuse. There have been instances in
which workers make claims for injuries they suffered because they were under the influence of alcohol or drugs, said Young, a Leroy Township Republican.
By eliminating such claims, workers’ compensation rates can be controlled, he said.
The system has been computerized, which Young projected would reduce the cost by 10 percent.
"Another thing we need to do is reduce taxes," Young said. "Ohio is in the top states when it comes to taxes. We have the highest state and local taxes. Because of that, many businesses leave Ohio, and even leave the country."
"Offshoring is a big issue to me," he said.
For the same reason, Young said he voted against raising the statewide sales tax from 5 to 6 percent last year.
"It’s the largest tax increase in Ohio, and it shouldn’t have come when the country was in recession."
Other options
Companies can do their part to keep expenses low, said Rebecca Morgan, president of Fulcrum ConsultingWorks Inc. in Cleveland.
"They (companies) should work on controlling costs, Morgan said. "Some companies don’t manage their expenses, even during good times."
By implementing lean manufacturing systems, many companies can reduce the cost of maintaining large quantities of inventory. Lean manufacturing calls for producing limited quantities to meet day-to-day needs.
It also reduces taxes on inventory.
Slashing entertainment and travel expenses is not always a wise idea, Morgan said, noting such a move could affect the sales department’s efforts to bring in more business.
To control the price of raw materials, Morgan urges companies to develop close relations with their suppliers, who may be able to give a deal on prices and deliver the goods promptly.
When revenue drops, companies tend to layoff workers instead of streamlining operations. Another common mistake is to ignore regular equipment maintenance in order to save a few bucks, which could turn out to be costly if the machine breaks down.
Pricing is not the only criteria for companies. Quality and service also dictate the market.’
"Offshoring is not a panacea’ for everyone," Morgan said.
