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Is Made In America Good Business?

Posted: Jun 24, 2009 09:50 AM by Will Ashworth

Tickers in this Article: NKE, WMT, AMEX:APP, SJM, SAM

Recent moves by Congress to include "Buy American" provisions in the stimulus act are proving popular with the public. Despite the trend towards protectionism, not everyone is happy about it. Those who aren't probably won’t like marketing efforts from companies like New Balance, who are going to great lengths to let us know their products are made in America unlike those of Nike (NYSE:NKE) and Reebok, which are made overseas in countries like Vietnam and Thailand. While politically correct, is this move by New Balance and others good for business?

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How American Is American?
Even New Balance, which has gone to the trouble of producing a documentary about its plants in Maine, is not producing solely or even mostly in the United States. While up to a quarter of its shoes are made or assembled in the United States, it still produces most of its product elsewhere.

Nonetheless, it's Made in the U.S.A. claim is a fair one. The question becomes whether there is any tangible benefit to keeping some of its production in its home market.

The website madeinusa.org suggests, "not only does buying Made in the USA products ensure that jobs are kept in the United States, but it also benefits both workers and corporations, instilling a pride in U.S. citizens about our economy and our manufacturing processes." I'd agree to a certain extent but it's not the main reason large companies are choosing to keep some manufacturing in the U.S.

Close To Its Customers
Today, it's all about speed to market. While retailers like Wal-Mart (NYSE:WMT) are doing their best to reduce order lead-times from their Chinese contractors, the reality is they'll never be nimble enough to get product from concept to delivery in anything less than weeks, if not months. Their volume requirements are just too large to do any better.

Compare that with American Apparel (AMEX:APP), which is able to turnaround new product concepts in as little as eight days due to its L.A.-centric manufacturing, providing its stores with a huge marketing advantage. (For more, read Measuring Company Efficiency.)

Locally Made Is Common Sense
Wal-Mart accounts for 20% of J.M. Smucker Co. (NYSE:SJM) revenues. Even though the Bentonville company isn't quick enough getting products to market, here they are doing a substantial amount of business with a company where all but $47 million of its $2.5 billion in sales were in the United States or Canada and whose products were made in 19 plants across our two great countries.

While Wal-Mart is definitely price conscious, they still need to deliver quality products and those who use Smucker's jams and jellies certainly can vouch for them. At the end of the day, when it comes to food products, closer to home is a good thing in my opinion.

Craft Beer Tastes Better
Another example is Boston Beer (NYSE:SAM), the largest craft brewer in the United States and the fourth largest overall. It managed to generate almost $400 million in sales in 2008. Despite this impressive performance, it accounts for less than 1% of American beer sold.

Call this the Anheuser-Busch effect. It brews all of its Sam Adams products from just three facilities in Ohio, Pennsylvania and Massachusetts. While sold in virtually every part of the U.S., it's good to know those of us in the eastern half of North America can get good beer in a timely, if not 100% locally-made, manner.

The Bottom Line
New Balance is a private company so profits are difficult to determine. Nonetheless, it is interesting that the sneaker company is willing to devote so much of its manufacturing to American plants, to the point of even bragging about it. I'm no globalization expert but this leads me to believe Made in America works. Going local makes sense, not because it's patriotic, but because it's good for customers and good for the bottom line. (To read on about a related topic, see Investing Beyond Your Borders.)

By Will Ashworth

Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.

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