SOUTHBRIDGE — A mainstay of Massachusetts manufacturing since the late 1800s, the Hyde Group tool company made a big leap overseas in 2010, when it outsourced production of its mass market putty knives and wallpaper blades to China.
“At heart, we’re manufacturers. It was the hardest thing for us to do, us in a fourth-generation family,” said Bob Clemence, vice president of sales at Hyde Group, and great-grandson of the man who bought the company in the 1890s. “In order for us to stay in business and still employ people, we had to move our low-end business off-shore. It really was like a stab in the heart.”
But the cost advantage of China has been steadily shrinking; it’s now 40 percent cheaper to make the tools there than in Southbridge. And if that continues to fall, then Hyde might be able to help President Donald Trump fulfill a central campaign promise: bringing manufacturing back to the United States.
“Forty percent [savings] is a huge number to overcome,” Clemence said. “We’ve determined that if it’s 20 percent or less, we’re going to do it domestically.”
As Trump cajoles American companies into returning production to US soil, experiences like Hyde’s illustrate the complex, multifaceted decisions manufacturers face as they choose where to build their products.
The president has talked of using lower taxes, fewer regulations, and higher tariffs to bring about a renaissance of American manufacturing. But for factory owners, it’s not simply about cheaper labor. The costs of energy and raw materials, the emergence of global competitors, and the location and demands of suppliers and customers all weigh on these decisions, a myriad of cross currents that will make it difficult to fix the factory economy with just a few bold prescriptions.
“It’s going to be not an easy job,” said Enrico Moretti, professor of economics at the University of California, Berkeley, who predicted that even if factories stay in the United States, production will be increasingly automated. “I’m not sure there is one explicit policy, a magic switch, that executive power in Washington can switch to retain jobs in the US.”
In the eyes of factory owners, singling them out won’t necessarily solve the problem. Some say they were forced to move production overseas by their customers. At Hyde, it was the retail stores that carry its tools demanding lower prices.
“It doesn’t matter what they say about made in the USA, it’s all about price,” Clemence said. “They’ve taken some basic items and said there are commodity products and said, ‘We only buy them by price.’ ”
In Norwood, the Manufacturing Resource Group opened a second factory just across the US border in Mexico in 2011 because customers demanded cheaper versions of its cable assemblies, wire harnesses, and other electric components.
“The decision to open in Mexico wasn’t ours,” MRG president Joe Prior said. “We were told that, ‘You need to have a low-cost option, or we’re not going to be able to do business with you.’ ”
The Norwood and Mexico factories nearly mirror one another, each employing about 70 people, with mostly the same equipment and capabilities. The Norwood factory still accounts for most of its business, as MRG’s local customers are willing to pay more for quicker shipping and customer service. But other customers simply want a cheaper product — wages at the Mexico factory are a quarter the cost of Norwood, while health care costs about 90 percent lower.
Prior said if Trump does impose a high tariff on imported products, as he has threatened, then that cost would probably be shouldered by customers of the Mexican factory.
“If there is a tax, it just has to be passed on to our customers and they’d have to make a decision about whether it makes sense for them anymore,” he said.
Since many US companies sell to customers around the world, a high tariff might bring some production back home — but at a cost. For Eastern Acoustic Works, that might mean losing international customers for its sound equipment.
The Whitinsville company is closing its factory here, laying off 27 workers and outsourcing most production of speaker systems and subwoofers to a contract manufacturer in China. There were just too many competitors around the world making similar equipment for Eastern Acoustic to justify charging higher prices for its US-made products, general manager TJ Smith said. Eastern Acoustic will instead concentrate on new sales, marketing, and R&D initiatives, creating white-collar jobs that will help it grow.
“Running a factory takes a lot of focus and energy,” Smith said. “We have to ask ourselves, what are we good at? What do we want to call our competencies?”
Smith said Eastern Acoustic might be forced to bring production back to the United States if the Trump tariff goes into effect. However, that move might also prompt the company to drop its international clients — Asia accounts for 30 percent of Eastern Acoustic’s sales — because the US-made products wouldn’t be competitive in overseas markets.
“It would split my business up too much, so I couldn’t support” an overseas factory, Smith said. “For our scale, I would lean toward [choosing] the domestic market at this point because that’s what I know and I’m closer to it.”
But the higher tariffs might help Eastern Acoustic in another way — by raising prices on products its European competitors are selling to US customers. “So that might increase my near-term opportunity domestically,” Smith said.
Raw materials, such as steel or energy, is another area Trump would have to address. Foreign steel, especially, is so much cheaper that it is very difficult for manufacturers not to use. But Trump’s promise to promote more domestic oil and gas production could be a major boon to factories.
For example, US companies are benefiting from very cheap domestic natural gas; that’s especially important in processing industries that use a lot of chemicals in their production.
Low gas prices have allowed Wembly Enterprises to aggressively buy up old New England factories that make plastics or coat fabrics, most recently Bradford Industries in Lowell. Bradford produces chemical-coated textiles that are eventually used to produce air bags and fake leather used in furniture, and its new owners believe the company could eventually triple or quadruple output at the Lowell factory — and its staff of about 70 accordingly.
“Low-energy costs are really a central part of why we think we can be competitive here,” said Sunil Kumar, managing principal of Wembly Enterprises, a family-run business based in New Jersey.
Another source of energy — electricity — is much more expensive, particularly in Massachusetts, so much so the Hyde Group is producing a line of its tools in a place not normally associated with low business costs: Canada.
The company owns a factory in Quebec through a subsidiary it bought in 2003, where it produces 350 different models of putty knives for the construction industry. Cheap hydropower in Quebec enables Hyde to produce those tools for much less than in Southbridge.
“Our labor rates are the same. The shipping costs are negligible,” Clemence said. “What it comes down to is when you’re spending $150,000 a month on electricity and you can save 15 percent on a monthly basis, at the end of the year, that’s a lot of money.”
Though a long way from its glory days, the manufacturing economy in Massachusetts is still significant: It accounts for about 10 percent of the state’s gross domestic product, and employs a quarter-million workers. What remains is increasingly specialized: high-end, high-tech production jobs that pay higher wages, but also require higher skill levels than traditional assembly-line work. Throughout the 2000s, Massachusetts factories saw an increasing number of workers with bachelor’s, master’s, and even doctoral degrees, according to a 2012 study from Northeastern University’s Dukakis Center for Urban and Regional Policy.
The Hyde Group still has a factory in Southbridge, where more than 100 employees make specialized blades and cutting tools for food processors, textile makers, and other industrial companies. Hyde needs to keep a close eye on production to ensure they are made quickly and to its exacting standards.
“We’re making 25 pieces to 50 pieces of a product that somebody will only order once a year or once every other year,” Clemence said. “And it doesn’t make sense for them to go off-shore for that type of product because they don’t order until they’re almost out, and they need it in three weeks. That’s sort of our forte.”
Indeed, increasing specialization might be key to growing the country’s manufacturing industry, rather than trying to compete solely on costs with China, Vietnam, or Mexico for assembly-line jobs. At Hyde’s Southbridge factory, a computerized laser that cuts steel might run $500,000, and the machine operator generally needs an associate’s degree or some college education, Clemence said.
Gary Herrigel, a University of Chicago professor who studies manufacturing and globalization, said businesses are usually willing to pay more for customized products, so the cost of production is less of a factor for manufacturers.
“If [companies] are more commodity-based or low-tech, then labor costs loom large,” Herrigel said. “If they’re producing things that are more complex or higher-end, then that doesn’t apply — and the location seems more safe.”
So Herrigel suggested the federal government should concentrate on promoting higher-valued, specialized production by investing in worker training and encouraging innovation.
“You can also reward higher-value-added strategies in the tax system by discounting how firms that do a lot of R&D are taxed,” he said. “Reward companies that introduce new products that can be demonstrated to result from R&D expenditure.”
Modern Massachusetts is better known for its intellectual capital than its factory output. But several of those leading-edge industries, including biotech and advanced electronics like robotics, are trying to establish a high-tech manufacturing base here.
One such company is CyPhy Works, which makes sophisticated drones for military, government, and corporate clients. To keep tight oversight over production, CyPhy makes the drones at its Danvers headquarters, going so far as sourcing nearly all materials from Massachusetts suppliers.
Chief executive Lance Vanden Brook said the drone assembly needs to be done near the engineers who designed them and said Massachusetts should concentrate on more of those types of manufacturing businesses.
“Massachusetts is always going to have a good quality workforce here, and we’ve got a culture in Massachusetts of good, hard-working, smart individuals. That’s going to drive companies like ours and others who want access to that high-quality labor pool,” Vanden Brook said. “The reality is we could probably go at some point and offshore the manufacturing, but we sort of look at it like there’s a variety of reasons to keep it here.”
Meanwhile, to save the kind of mass-market assembly jobs whose loss Trump has lamented, Clemence, the Hyde Group executive, suggested consumers, as much as factory owners, have some role to play.
“We are a throwaway society. We want stuff; we want it new,” he said. “We’ve proven that unless it means something to you, most people will gravitate to the lower-cost products. And so therefore it becomes difficult not to manufacture something at the lowest costs possible.”Adam Vaccaro can be reached at firstname.lastname@example.org. Follow him on Twitter @adamtvaccaro.