There’s been buzz about Keer Group lately, the Chinese textile company that opened a cotton mill this year in South Carolina. China has long been seen as the global capital of textile manufacturing, due in part to their low production costs and seemingly endless supply of cheap labor. But Keer Group found the rising costs in China made it difficult to grow in its hometown of Hangzhou. Wages there have been steadily increasing, energy costs are rising, and shipping costs are growing higher. Textile operations in China are actually starting to become unprofitable. So production was moved to America. And Keer Group is not alone. JN Fibers Inc., also of China, is building a plant in South Carolina. Indian textile manufacturer, ShriVallabh Pittie Group, is building a factory in Georgia.
Why would textile companies from traditionally low cost countries move production to the U.S.? What’s the allure for these foreign companies? Isn’t it expensive to operate here as opposed to low wage countries like China and India? Well, despite the comparatively high wage rate in the U.S., several factors are at play to offset the cost of labor. Years of low employment mean that Americans are willing to work longer hours and for suppressed wages. The U.S. is also home to several right-to-work states where union representation is low and workers are not restricted to a single task but rather can set up, operate, and run multiple machines. But even with a wage gap between the U.S. and low wage countries, the gap is more than compensated for by other savings.
“Except for human labor, all other production factors are cheaper in the U.S.”
The U.S. is a political, economic, and infrastructural oasis in an uncertain world. America benefits from cheap, plentiful, and reliable energy ensuring production facilities can be kept running constantly. While textile companies in the past have looked to countries such as Bangladesh and India to keep production costs low, economic volatility resulting in unreliable energy sources are disrupting production. Many plants today are primarily automated, meaning companies rely on the constant energy supply. What good are cheap utilities when they aren’t stable?
The U.S. has also created incentives to keep costs down for foreign companies looking to relocate. Government at the local, state, and federal level have eagerly provided infrastructure grants, revenue bonds, and tax credits in order to bring back jobs to economically depressed areas. Additionally, trade agreements between the U.S. and other low cost countries provide the extra incentive of keeping shipping and logistical costs low. NAFTA has created duty free zones on imported textiles between the U.S. and several trade partners. And should the Trans-Pacific Partnership reach an agreement, companies with production in America can take advantage of an expanded pool of countries with tariff reductions, including Vietnam.
Just how difficult is it for a foreign company to establish operations in America? Not difficult at all. The U.S. Small Business Administration has provided excellent guidance on the basic steps needed get started.
Businesses in the U.S. are incorporated at the state level, first by registering with the state and then establishing a registered agent with a valid state address to receive legal documents on behalf of the company. Considerations for the foreign company include which state will be the most attractive in terms of readiness of labor force, land availability, and tax benefits.
International shipping of goods through the U.S. will be regulated at the federal level, requiring specific licenses and permits. The Department of Commerce’s Trade Information Center and the U.S. Customs and Border Protection provide useful information on U.S. importation and exportation procedures. Additional considerations include compliance with the Internal Revenue Service, starting by either obtaining an Employment Identification Number or an Individual Taxpayer Identification Number, depending upon the citizenship of the individual establishing the business. Trade licensing requirements, IRS compliance, and tax credits, including incentives available to businesses through a foreign tax treaty, are all important issues to consider, and if left with any questions, it is always best to consult with a qualified attorney.
There are numerous benefits for a foreign company to relocate manufacturing operations to the U.S., but there are also important considerations that should be taken into account. However, navigating the channels of regulations and requirements shouldn’t deter manufacturers from taking advantage of all of that come from setting up shop in America. Foreign companies are finding that operating in what were traditionally considered to be low cost countries are no longer profitable and are starting to look outside their borders. And if companies like Keer Group are any indication, for the first time in a long time manufacturing in America is not only a consideration, it’s a serious contender.
