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Unclouding the Future of Manufacturing

Sadie Keljikian, Express Trade Capital

Job creation, especially in the manufacturing industry, is a hot topic in the US right now. Since last year’s presidential campaign, there’s been an ongoing debate among politicians, business owners, and news outlets about the future of domestic manufacturing. President Trump has blamed the uptick in outsourced labor and consequent job losses on NAFTA, calling it the “worst trade deal” in American history. However, numerous sources argue that technology and automation are the real culprits.

Several sources claim that machines (not outsourcing) are responsible for about 85% of US manufacturing jobs lost since 2000. Even so, many American-run companies are bringing domestic manufacturing back in anticipation of potential legal and regulatory changes emanating from the tumultuous Trump administration, like the proposed border adjustment tax. With advances in automation spanning every industry, even farming, and robotic technology becoming more affordable, it is hard to imagine that there are as many potential jobs in domestic manufacturing as voters have been led to believe. It’s easier for candidates to make vague promises than to explain the more complex and subtle truth. Thus, politicians have been stoking voters with pledges to bring back a golden age of employment that no longer exits and is no longer feasible.

Businesses are taking different approaches in their attempts to create jobs. Some are bringing manufacturing back to the US, banking on the cache of goods labeled “made in the USA” and on US consumers to support domestic businesses by purchasing them, even at a premium compared to their imported counterparts. However, since automation has taken over so many manufacturing processes, it is unclear whether it is a viable long-term solution for employment. Others are attempting to create new jobs by consolidating the retail experience. With recent difficulty in the retail industry, particularly among stores commonly found in malls, some retailers, like Walmart, are creating a mall-like experience within their stores. Many Walmart locations now include services like eye care, dining, and salons, which keep customers in the store by providing them with services they already need.

Other sources claim that there is a serious opportunity for job creation inherent in the current rise of e-commerce. As online shopping continues to grow in popularity, retailers who focus on e-commerce are hiring new sales staff at impressive rates. What’s more, comparable jobs in e-commerce have better salaries, paid leave, stock benefits, and insurance than similar positions in their brick and mortar counterparts. Unfortunately, however, these jobs are highly concentrated in major metropolitan areas, so they don’t reach most of the geographical US.

Some experts are still holding out hope for traditional US manufacturing jobs, just not in mass-produced products. In recent years, the US has seen a rise in domestic manufacturing of custom or handmade products. While these products will never reach mass-production volumes, they appeal to the conscientious shopper who is less concerned with cost than they are with knowing where their money is going. These businesses usually use eco-friendly, fairly traded raw materials and typically work on a much smaller scale, in terms of both space and workforce. Since the products are more expensive to make, they naturally cost more for consumers. However, marketing and sales of such products typically target consumers who are willing to pay the extra cost of purchasing ethically sourced goods, so low volumes aren’t as much of a hindrance to the success of smaller scale, eco-friendly, domestic manufacturers.

In contrast with all the above perspectives, some still say that domestic manufacturing employment is already far more prosperous than most of us realize. A recent paper from the Center for Opportunity Urbanism indicates that 52 of the country’s 70 largest metropolitan locations have actually seen an increase in industrial employment since 2011. Forbes agrees and both say that while manufacturing is unlikely to disappear altogether, the issue is not that the industry is disappearing, but rather that it peaked in the 1950s and will likely never reach or surpass those levels again. Both sources blame automation for the sea change in the industry.

Whatever the case going forward, several of the country’s most prosperous industries are changing the way they do business. Many companies employ technology to cut costs and increase efficiency, often at the expense of jobs. Others simply outsource their production to countries with substantially cheaper labor costs. Might this mean that the end of significant employment in the US manufacturing sector? Possibly. The shifting landscape indicates that the new challenge for governments, manufacturers, and especially for retailers, is creating new jobs. So far, that’s job we cannot automate or replace with technology. Either way, it seems clear that, as technology continues to advance, creative destruction will continue to bedevil any semblance of a stable labor market.


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US Manufacturing Come-Back

Sadie Keljikian, Express Trade Capital

American companies are bringing manufacturing back to the US.

2017 has thus far proved complicated for retailers and US-based wholesalers and manufacturers. Retail shopping has hit a record low and the future of global trade is uncertain at best. President Trump is planning to enact a border adjustment tax as a financial slap on the wrist to companies who continue to outsource their manufacturing. US businesses, however, seem to be adjusting their practices ahead of the legal ramifications.

Businesses and local government officials across the country are watching the current administration closely. With so many proposed changes, several of which are quite drastic, Americans are concerned about if and how the changes will affect them personally and financially. In some cases, this means that companies are boycotting brands owned by the first family due to concerns of conflict of interest. In the case of manufacturing, however, US businesses seem to have no qualms about preemptively bringing their facilities back home.

Interestingly, the move to bring manufacturing jobs back to the US began before the election. In the last few years, businesses like GE and Ford have brought a significant portion of their production facilities back. It was a welcome reprieve for American manufacturing workers who have struggled since the turn of the millennium to find jobs.

Sources claim that companies were too focused on manufacturing costs in their efforts to offshore production in the 1990s and early 2000s. In fact, many report that domestic manufacturing is cheaper regardless of higher wages because businesses didn’t factor in freight costs, duties, and carrying costs of inventory. As it happens, these aspects usually make far more difference than manufacturing wages in total operational costs.

The movement to expand domestic manufacturing is not limited to central states, where American manufacturing was most active in the 20th century. The New York City Economic Development Corporation (NYCEDC), the Council of Fashion Designers of America (CFDA), and the Garment District Alliance have announced that they will collectively invest a $51.3 million package in the garment manufacturing industry in New York City. Mayor De Blasio has also made plans to expand manufacturing with a new complex, which is currently under construction in Sunset Park, Brooklyn.

The shift in priorities requires realistic and careful thought about how to reestablish a domestic manufacturing industry that provides quality jobs and affordable products. A lot of businesses are focusing their domestic manufacturing efforts on luxury goods and items that require specialized equipment. 3D print manufacturing is a perfect example of manufacturing that requires specialized skills and equipment, and thus could provide innovative products and specialized employment for domestic manufacturing workers.


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Made in NY: Brooklyn Campus Announced

Sadie Keljikian, Express Trade Capital

Last month, Mayor De Blasio announced that the city will open a new design campus and manufacturing space for apparel, film and television in Sunset Park, Brooklyn. The Council of Fashion Designers of America is also involved in the development. The new space will be the latest addition to the city of New York’s Made in NY campaign.

New York City has a long and vibrant history in the garment manufacturing industry. Local manufacturing in the Garment District began more than 200 years ago, and was a massive source of employment for European immigrants beginning in the late nineteenth century. Production in the district peaked in 1950, when New York City apparel manufacturers employed 323,669 New Yorkers. However, in recent years, garments made in New York City are much harder to come by.

The industry began to shrink when sales of ready-made garments took favor over custom pieces, beginning in the mid-20th century. This combined with outsourced manufacturing jobs and exorbitant rent hikes in the Garment District (rent in the neighborhood has reportedly risen 38 percent since 2013) have meant that a number of businesses have had to find alternate accommodations.

The new, 300,000-square-foot space (equipped to host 25-35 tenants from the fashion industry alone) will be at Bush Terminal. Construction will cost approximately $136 million, according to De Blasio’s announcement. In conjunction with the new complex, the city also plans to expand the nearby Brooklyn Army Terminal Building. The terminal’s additional 500,000 square feet will be available this September.

Elected representatives in Sunset Park have some doubts about the plan. Brooklyn Borough President Eric Adams, along with City Council member Carlos Menchaca and Congress people Nydia Velasquez and Jerrold Nadler have reached out to the mayor. They ask that he is conscientious of the effects gentrification may have on the Sunset Park area, expressing concerns that long-term residents will be displaced by rent hikes brought on by the project.

De Blasio was able to subdue concerns to a degree with the promise that the campus will eventually create 1,500 permanent jobs. Construction on the buildings will take a few years and, according to sources, will employ more than 800 construction workers.

Local designers and manufacturers are eager to take advantage of the massive new space, which will provide cheaper rent than the Garment District can currently offer as well as state of the art technology. The space is set to open in 2020.


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Big Brands Boycott Dhaka Apparel Summit

Sadie Keljikian, Express Trade Capital

Recent ethical difficulties in the Bangladesh garment manufacturing sector are discouraging global brands.

Bangladeshi garment manufacturers have been eagerly anticipating the second annual Dhaka Apparel Summit this Saturday. The event will be hosted by the
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and was set to host representatives from numerous domestic and global brands. Bangladesh has been rapidly growing as a sourcing hub for several years and currently represents nearly 6% of the $450 billion global garment trade.

The summit was planned to demonstrate continuing growth in the Bangladeshi manufacturing sector, which has been a topic of heated debate since the infamous collapse of Rana Plaza in 2013. Unfortunately, difficulties in the sector continue to mount. Since December, garment factory workers in Bangladesh have been striking and demonstrating in Ashulia to demand a raise in the minimum wage, which currently stands at approximately $67 USD per month.

Response to the strikes is adding to the controversy, with reports of police and government officials harassing and suppressing unionized workers. Based on these reports, it seems that the efforts of the Bangladeshi government are in service of stifling manufacturing workers, rather than negotiating the union’s demands. As a result, numerous big-box retailers have backed out of the summit, fearing scrutiny from their customers. Companies that have chosen to skip the summit include H&M, Gap, Inditex (parent company of Zara), Tchibo, Next, C&A and VF Corporation.

The Ethical Trading Initiative is also boycotting the event. ETI’s Peter McAllister gave a statement, saying “ETI recognizes the importance of the Apparel Summit to the future of the ready-made garment sector in Bangladesh. Unfortunately, the current intimidation of workers and their representatives is at odds with a progressive industry looking to secure the sustainable development of the sector.”

Although McAllister isn’t planning on attending the summit this weekend, he plans to meet with stakeholders in Bangladesh to discuss improvements at a later date. The hope is that the collective financial impact of the boycott on the event and its contributors will encourage the Bangladeshi government and industry leaders to address the concerns of factory workers, rather than suppress them.

Across the board, businesses are feeling compelled to express their opinions through boycotts and donations in accordance with their mission. Boycotts in the apparel and service industry have become extraordinarily common, both on individual and corporate scales. In one such instance, activewear retailers including Patagonia and Polartec chose not to participate in Salt Lake City’s Outdoor Retailer trade show due to controversy surrounding the Bears Ears National Monument.

The summit will go ahead as planned, but eyes are on Bangladesh and their future action with regard to treatment of their employees.


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Trump’s Victory Raises Trade Concerns Abroad

Sadie Keljikian, Express Trade Capital

Donald Trump’s presidential victory has raised concerns about the future of international trade.

A significant part of Trump’s platform has been a push to raise tariffs on exports from other countries to the US in an attempt to revive the US manufacturing industry and create jobs. Specifically, Trump has said that China absolutely must reform their trade practices. He’s promised to impose a 45% tariff and officially accuse China of currency manipulation, should current patterns continue. The Trade Facilitation and Trade Enforcement Act of 2015, signed by President Obama, addressed this issue. Trump, however, insists that the US needs to rebuild domestic manufacturing and condition trade with China carefully.

Trump’s plan doesn’t end with China; the president elect intends to discourage importing and outsourced manufacturing globally. The plan leaves European, Asian and Mexican manufacturers concerned with the possibility of an end to trade with the US, home to the world’s largest trading economy.

Concerns for the future of the global economy have been SAMSUNG CAMERA PICTUREScirculating since the United Kingdom notoriously voted to leave the European Union this year. Voters in the UK and US have demonstrated a focus on internal economic development. This would mean step back from participation in the global economy. The shift concerns industry leaders in other parts of Europe, as well as Asia and Central/South America, as both countries are powerful international traders.

Volkswagen Chief Executive Matthias Mueller and VDA, the German auto industry association, expressed particular concern. The industry has already been in a state of panic since the Brexit vote went through. Now, they are concerned that the US will take a page from China’s book. VDA said today, “It is to be feared that the United States under a new President, just like China, will mainly focus on their own economies, at the expense of international trade flows and relationships.”

The election result has added to uncertainty about global economy in other respects as well. Overnight following the election, global securities dropped abruptly. S&P 500 futures fell approximately 5%, its limit. The Nikkei stock index in Japan fell about 5% as well and the Mexican peso fell to a record low. Most of the immediate effects wore off by Wednesday morning. However, concerns continue to grow about the future of international trade under Trump’s administration.

It is currently impossible to tell if Trump will follow through with these specific plans, but presidents hold a surprising amount of power over trade policy, even without congressional approval. Trump intends to halt any existing international trade agreements, including NAFTA and the recent Trans-Pacific Partnership. A recent study by the Peterson Institute warned that China and Mexico may retaliate in response to high tariffs. They even suggest that the potential response could cause another U.S. recession and cost 5 million jobs. Again, it is impossible to predict how or if these eventualities will play out, but the potential disturbance in the global market has certainly raised questions and concerns on an international scale.

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Performance Sports Group Ltd. Enters Chapter 11

Sadie Keljikian, Express Trade Capital

Performance Sports Group Ltd. has filed for bankruptcy protection in the US and Canada. The company announced that it was facilitating a restructuring and sale of nearly all of its assets on Monday morning.

Performance, maker of Bauer ice hockey gear, announced that it would auction its assets to reconcile its debt. The announcement, however, came after Performance had a deal to sell a majority of its assets to Brookfield Asset Management for just over $575 million. Brookfield, an investor group, is led by Sagard Capital and Fairfax Financial Holdings Ltd. Former Chairman of Performance Graeme Roustan said in August that he was working with investment banks to find a bid. On Friday, Reuters clarified by reporting that Performance would enter bankruptcy protection with a buyer in hand and would seek out higher bids.

It is important to note that Performance’s difficulties demonstrate a wider national trend. Recently, increased competition in North American sporting goods manufacturing presents numerous challenges to all domestically based members of the industry. Due to the industry’s recent turmoil, Sports Authority Holdings Inc. have taken some financial hits in recent months as well. The retailer filed for bankruptcy in March, triggering a $90 million loss of Performance Sports inventory, according to Wall Street Journal.

Performance listed both its assets and liabilities in the range of $500 million to $1 billion. The company listed both amounts in its voluntary petition filed under Chapter 11 in Delaware.

Despite the numerous complexities of this case, Performance claims that operations will continue as usual during the bankruptcy process. Brookfield and existing lenders will provide $386 million debtor-in-possession financing. Performance also announced management changes, President Amir Rosenthal and Executive Vice President Todd Harmon left on Friday. Furthermore, Dan Sills was named executive vice president of hockey, Mike Thorne is now executive vice president of baseball and softball, and Jennifer Hughey was named senior vice president in charge of supply chain management.

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Blockchain Changes the Game

Sadie Keljikian, Express Trade Capital

The trade finance world is all abuzz about blockchain technology, which sources claim will change the industry for the better.

Blockchain, a variety of digitized ledger system originally established for Bitcoin, provides a new, simplified way of verifying and monitoring transactions. All pertinent parties can access and update data entries and must approve each transaction. Then, the system encrypts each transaction into a “block,” or digital code. The software then backs up information from each block in a short code or “hash,” and attaches it to the subsequent block. The backup hash makes any tampering with the ledger immediately evident.

A system to encrypt transactions could be incredibly useful in trade business-1676138_1920finance because of its implications for securing supply chains. Manufacturers have recently struggled with supply chain transparency. This is largely due to the fact that consumers have become more concerned with where their money goes. There is potential for dubious practices in any supply chain, but certain goods are difficult to monitor. Among these are conflict minerals, which are one of the recent concerns among consumers.

The tin, tantalum, tungsten and gold industries have recently fallen into the hands of rebel warlords. The resulting turmoil is painfully reminiscent of the diamond mines in Sierra Leone. Given the option, many consumers prefer to purchase ethically manufactured products. Blockchain allows for transparency, even in cases of complex, multinational supply chains.

With a blockchain system, the details of every single transaction are both accounted for and secure. This means that all materials, labor, and shipping costs can be ascertained through a transparent, secure tracking mechanism. Consumers who seek to avoid the products for ethical reasons will have the tools to make more informed buying decisions. Mineral purchases are listed with a “stamp” indicating origin of the mine or smelter, making background checks throughout the supply chain far simpler. Among the obvious benefits, consumers and retailers will be better able to reward producers who supervise their processes and products thoroughly. In short, the promise of more transparency and security offers the hope that consumers can make more informed decisions. Presumably, the public availability of supply chain details will make it harder for unscrupulous businesses to continue operating in obscurity.

From the perspective of the manufacturer, the effects of blockchain technology are a mixed bag. A system for tracking transactions reduces the cost of due diligence when sourcing suppliers. As a result, manufacturers, wholesalers and retailers can make more educated decisions overall. Manufacturers can also use blockchain to investigate pricing in less familiar areas of their supply chain, allowing them to negotiate better terms. This is good news for the manufacturer and, potentially, bad news for suppliers of raw materials. Suppliers may struggle to adjust prices as needed, since they will be in more direct competition with others.

On the other hand, manufacturers may not be comfortable with the public nature of blockchain systems. Although the system is secure insofar as it cannot be tampered with, the ledger is publicly available, meaning discretion will no longer be an option. The system is also fairly new, so there are not yet enough test cases to get a thorough sense of what difference it will make. For those who prize transparency above all else, blockchain seems to offer a panacea to the opacity necessary for complex, multinational supply chains. Transactional efficiency is another major advantage.

In short, blockchain technology offers a promising solution to problems with ledger accuracy and supply chain transparency. Advocates say the system will be instrumental in streamlining and modernizing international trade and finance. Only time will tell if the system will live up to expectations in practice.

 

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Collaborative Manufacturing Hub to Open in Chicago

Sadie Keljikian, Express Trade Capital

Chicago may soon have a domestic manufacturing sector to be reckoned with.

The opening of the brand new mHUB was announced by Chicago Mayor Rahm Emanuel and is billed as “Chicago’s first innovation center focused on product development and manufacturing.” The project is a joint effort of World Business Chicago and the mHUB board of directors intended to provide much needed resources to local manufacturers.

Said Mayor Emanuel, “mHUB builds on Chicago’s history as a home for hard-working men and women with bold vision and big ideas… mHUB will unite the manufacturing center with our vibrant technology-focused entrepreneurial scene, and will encourage new and existing manufacturing as a driver of growth for our city thanks to new applications in product development and manufacturing.”

The space is roughly 60,000 square feet and encourages collaboration and communal work among entrepreneurs, manufacturers, engineers, designers and investors. With numerous partners and investors like GE Ventures, Marmon, Chase Foundation, Comcast Business and Kirkland & Ellis, the state of the art production space has garnered a lot of attention from top global investors.

To jumpstart the center, at its opening, the mHUB board will work with the two year old Catalyze Chicago Incubator to help companies develop prototypes into finished products.

“We are excited to introduce mHUB to the manufacturing community,” said World Business Chicago President and CEO Jeff Malehorn. “mHUB will help spark innovation and growth in the industry, and encourage the development of cutting-edge manufacturing products for the future.”

The space is set to open near the end of the year.

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Review: “Supply Chain Transparency”

Sadie Keljikian, Express Trade Capital
Recently, ‘supply chain transparency‘ has become a paramount issue for the American consumer. Manufacturers, as well as some “fast-fashion” retailers, are shifting sourcing strategies to insure that their products are made according to certain environmental and ethical standards.  Many speculate that this trend began with reports of sweatshop labor in Southeast Asia in the early 1990’s, when companies like Nike were criticized for underpaying factory workers abroad. Soon thereafter the public began to realize that nearly every large-scale retailer had similar problems related to supply chain activities.

Although increased public knowledge of these issues has improved matters, there are still areas in which we, as consumers, are completely left in the dark. Bloomberg reports that the latest difficulty in supply chain transparency involves conflict minerals. Around the turn of the millennium, western society became aware of the horrific conditions surrounding De Beers diamonds, which were mined by slaves and sold by armed rebels. What many of us didn’t realize was that other minerals used by companies like Apple Inc. and General Motors Co., among many others have equally problematic histories.

Since the 2010 Dodd-Frank Act, US-listed companies have been required to investigate supply chains involving tin, tantalum, tungsten, and gold. This is due to similar problems that existed in the diamond mining industry, most notably mining revenue funding militia groups in the Democratic Republic of the Congo, as well as surrounding countries. Because manufacturers of electronics and gasoline require a number of minerals from different geographical location, keeping track of these aspects of their supply chain gets very complicated. The difficulty is compounded by the fact that, according to the United Nations Security Council, rebel militia are still profiting illegally.

In the 2015 reports filed over the last several months, however, companies seem to be making a more concerted effort to thoroughly investigate their supply chains and squash any illegal activity. Chris Bayer, an independent academic with Development International, a non-profit, says “[c]ompanies that…are looking at this as a litmus test for their suppliers are going to be seen as leaders. It’s not just about conflict minerals. We’re looking at how much command and control you have over your supply chain.”

Some companies, however, lack internal mechanisms necessary to investigate their supply chains as thoroughly as is needed. Nearly half of companies that filed 2015 conflict materials reports had all four materials in their supply chain, according to Bayer. About 10% of conflict material filers (over 100) said or implied that their products are conflict free, but only 19 of them underwent an audit for claims on their products.

The issue of criminal activity in the global supply chain is a complicated one, but hopefully, consumers better equipped to detect and minimize the ethical issues that arise in international sourcing and manufacturing.

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RGT Italia Holds Clothing Sustainability Workshop

Sadie Keljikian, Express Trade Capital, Inc.

RGT Italia recently organized a workshop entitled, “Sustainability and Product Development,” in an effort to encourage environmentally conscious practices in garment manufacturing. RGT, a Padua-based subsidiary of the German manufacturing group Bock & Partner, hosted approximately 70 representatives from Italian and German fashion and sportswear makers including Hugo Boss, Marc’O Polo, and René Lezard.

The workshop touched on all aspects of the garment manufacturing process with discussions on topics ranging from fashion schools to fabric manufacturers, chemical substance producers and sewing yarn makers.

The event was particularly well-timed given European manufacturers scramble to updated their eco-policies in light of the recent Volkswagen scandal.

Dietrich Bock, CEO of Bock & Partner, was satisfied with the response to the workshop, saying “I’m sure that product managers and designers who participated in the event could get a wider perspective about what sustainability, renewability and eco-friendly production processes mean. And we are ready to face all future challenges.”

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