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OM in the News: It’s No Fun Making Toys in the USA

February 17, 2015
Raymond Beaver, Marshmallow's CEO, has not been able to move manufacturing from China to the U.S.

Raymond Beaver, Marshmallow’s CEO, has not been able to move manufacturing from China to the U.S.

Marshmallow Fun Co. designs and markets toy guns that shoot sweet, spongy projectiles 30 feet or more. So far, though, the Dallas-based company has been unable to hit one of its targets: Making at least some of its “blasters” in the U.S. rather than relying exclusively on contract manufacturers in China. “I salute anybody who’s making goods in the U.S.A.,” says the firm’s CEO in The Wall Street Journal (Feb. 10, 2015), “but it isn’t so easy.”   

American entrepreneurs eager to bring manufacturing back to the U.S. often run up against an obstacle: Unlike China, the U.S. has few contract manufacturers geared up to make consumer products on a large scale. Contract manufacturers make products for other companies that prefer to focus on product design and marketing. “In China, you can find a specialist in any product. You want a toaster oven? There are a dozen contract manufacturers that make toaster ovens. That kind of contract manufacturing just doesn’t exist anyplace else,” adds a China-based consultant.

A search for contract manufacturing services on the Chinese website Alibaba.com brings up more than 2,000 entries. China and Taiwan have huge contract manufacturers like Hon Hai Precision Industry, known as Foxconn, which makes iPhones for Apple Inc. China also has thousands of smaller ones bidding to make products for the likes of Mr. Raymond. In the U.S., contract manufacturers generally make parts, as opposed to finished products. Some make expensive items sold in fairly small volumes to industrial or military customers. In terms of expertise and production capacity, “we let so much leave the country that you can’t find what you need,” says a Rhode Island product designer.

Classroom discussion questions:

1. What are contract manufacturers and what do they do?

2. Why is it hard for many firms to “reshore” manufacturing?

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