The Re-Shoring Myth

A few weeks ago, Peavey Electronics announced that they were “reorganizing manufacturing” under a new globalization plan (reported on page 6 of this issue). There are many facets to this development and plenty of angles to consider, but one of the most immediate is that, beginning later this month, the company will be laying off as many as 100 factory workers at its Meridian, Mississippi facility.

Moves such as this are almost always driven by necessity. In The Meridian Star, company founder and owner Hartley Peavey says, “If we are not competitive, we lose business to somebody else. We are going to do what we have to do to survive.” He expands on the factors at play, citing high corporate taxes and operating costs related to doing business in the U.S. “You can’t keep increasing taxes and increasing medical costs… In order to preserve the jobs for the people I have, which is a lot more than were laid off, we had to do this.”

In other words, money. A company observes that current practices are resulting in increasingly lower profits and/or incurring greater and greater cost, so a change is made. That’s business and there’s absolutely nothing “wrong” with making that type of decision. Moreover, Hartley Peavey has long been an advocate for U.S. production and materials and, even with this “new globalization plan,” most of the company’s actual business (marketing, engineering, sales, product development, et cetera) as well as production of higher-end items will remain stateside.

Nonetheless, any time an organization enacts this type of shift, there will be varied – and often energetic – reactions. On Bobby Owsinksi’s “The Big Picture” blog, Owinski is sympathetic to Peavey’s choice and writes, “The business is shrinking thanks to more and better software and less need for hardware, which cuts right to most manufacturer’s bottom line. Not only that, the trend is more to smaller and compact systems rather than large expensive boxes, which requires a company to be extremely nimble and efficient to survive… a strong and healthy Peavey also helps the industry stay healthy. Let’s hope that this restructuring means another 50 years for the company.”

On the other side of the coin, however, there are plenty of voices in the blogosphere lamenting the restructuring. On our own mmrmagazine.com, even, one particularly dissatisfied individual posted multiple comments in reaction to the news, most of which are unsuitable for print, but all along the lines of, “Total sell-out!!… Designed and engineered in Meridian, made in China.”

The bigger issue, of course, goes well beyond any one company or individual.

For years – decades, at this point – we’ve been hearing of offshore outsourcing of manufacturing for virtually all products, not just musical instruments. The big trend throughout the ‘90s and aughts was moving factories to China. Lately, due to heightened tension between the Chinese and American governments, some organizations that had been (or might have been) looking to Asia are now turning to Mexico. Also in the past few years has been the much-ballyhooed notion of “re-shoring” – the phenomenon of big companies bringing production back to the U.S. This, naturally, is a great talking point for politicians and, in instances where it’s truly the case (and there are increasingly more such instances, as evidenced in a report on the topic issued by The Boston Group in late October, 2014), reclaiming domestic employment is unquestionably a “feel good” development and one that most of us would want to get behind.

But as the recent announcement by Peavey – as well as plenty of data – suggests it’s probably not quite time to raise the “Mission Accomplished” banner and toast to the triumphant return of American industry.

Based on Trade Adjustment Assistance (TAA) filings made to the U.S. Department of Labor’s Employment and Training Administration on behalf of displaced workers, hundreds of major American companies (589 in the past 10 months, alone) continue to send thousands of jobs overseas – be it China, Taiwan, Mexico, India, or anywhere else. 

A successful business becomes successful, in part, by making smart decisions. Putting aside for a moment the topics of child labor, absurdly low pay, insanely long workdays, and other factors native to some foreign workforces, the fact is that until/unless it makes good business sense to keep production in the U.S., those types of jobs will continue to be shipped overseas. 

I don’t have the answers – far from it. If I did, odds are I’d be lounging beachside in Ibiza right now. I’ll submit, though, that while it’s understandable to bemoan the recent decisions over at Peavey, instead of getting angry, gloating, or gossiping, time might be better spent analyzing the reasons behind such tough choices and maybe working to propose and enact solutions.