[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                  MADE IN THE U.S.A.: SMALL BUSINESSES AND
                A NEW DOMESTIC MANUFACTURING RENAISSANCE
=======================================================================

                                HEARING

                               BEFORE THE

                SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND 
                              CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 13, 2014

                               __________



[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]





            Small Business Committee Document Number 113-060
              Available via the GPO Website: www.fdsys.gov

                              ----------

                    U.S. GOVERNMENT PRINTING OFFICE
87-279                        WASHINGTON : 2014
____________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202-512-1800, or 
866-512-1800 (toll-free). E-mail, [email protected].  






                   HOUSE COMMITTEE ON SMALL BUSINESS


                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Tom Rice....................................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Ms. Shirley Mills, Director, The Boston Company, Boston, MA......     4
Mr. Robert M. Hitt III, Secretary, South Carolina Department of 
  Commerce, Columbia, SC.........................................     7
Mr. Kevin Harberts, President/CEO, Kryton Engineered Metals, 
  Inc., Cedar Falls, IA..........................................    10
Ms. Mei Xu, CEO, Owner, Chesapeake Bay Candle, Bethesda, MD......    12

                                APPENDIX

Prepared Statements:
    Ms. Shirley Mills, Director, The Boston Company, Boston, MA..    27
    Mr. Robert M. Hitt III, Secretary, South Carolina Department 
      of Commerce, Columbia, SC..................................    45
    Mr. Kevin Harberts, President/CEO, Kryton Engineered Metals, 
      Inc., Cedar Falls, IA......................................    49
    Ms. Mei Xu, CEO, Owner, Chesapeake Bay Candle, Bethesda, MD..    52
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    IPC Market Research, On-Shoring in the Electronics Industry: 
      Trends and Outlook for North America, 2013 Update..........    57


 MADE IN THE U.S.A.: SMALL BUSINESSES AND A NEW DOMESTIC MANUFACTURING 
                              RENAISSANCE

                              ----------                              


                        THURSDAY, MARCH 13, 2014

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 1:00 p.m., in 
Room 2360, Rayburn House Office Building. Hon. Tom Rice 
[chairman of the subcommittee] presiding.
    Present: Representatives Rice, Chu, Schneider, and McLane 
Kuster.
    Chairman RICE. Good afternoon. This hearing is called to 
order.
    I would like to thank the witnesses for appearing before 
the Committee today to discuss an issue of emerging importance 
to small businesses and our national economy--enhancing the 
growth of manufacturing production in the United States.
    Over the last few decades, the United States has witnessed 
a significant decline in manufacturing jobs. While the value of 
the output of the United States manufacturers has more than 
doubled over the last 40 years, this growth in output value has 
not translated into similar increases into manufacturing 
employment. In fact, since peaking at more than 19 million jobs 
in 1979, total manufacturing employment has declined to a 
little over 12 million jobs today.
    Many economists attribute these employment declines to 
increases in manufacturing productivity as the adoption of new 
technologies have permitted manufacturers to achieve higher 
output with fewer workers. Another factor is the emergence of 
new manufacturing opportunities overseas, many of which offer 
manufacturers lower labor costs compared to those in the United 
States. Over the last decade or so, this has led to a trend 
some have called offshoring, where domestic firms design and 
engineer products in the United States but conduct the actual 
manufacturing of the products overseas. However, there are 
signs that this trend is reversing as companies move production 
back to the United States, a trend commonly referred to as 
reshoring. In addition, the United States has begun to 
experience a process known as onshoring as foreign companies 
relocate some of their manufacturing from their home countries 
to the United States.
    The purpose of today's hearing is to examine the extent to 
which manufacturing reshoring and onshoring trend is 
occurring--what factors are influencing it, what policies are 
necessary to help it reach its full potential, and what growth 
in American manufacturing means for small businesses.
    Before I introduce today's witnesses, I would like to yield 
to Ranking Member Chu for her opening statement.
    Ms. CHU. Thank you, Mr. Chair.
    American manufacturing has been the nation's economic 
engine throughout much of the 20th century. The country rose to 
its place as a global economic superpower as customers clamored 
for the latest American-made products from planes to cars to 
television sets. Our robust manufacturing sector employed tens 
of millions of Americans and helped build the middle class. 
However, manufacturing's role in the U.S. economy has changed 
considerably since the `60s. As the nation flourished, our 
economy evolved, moving away from manufacturing and more 
towards service-based industries, such as healthcare, 
hospitality, and financial services. Simultaneously, countries 
like China and Brazil went through their own industrial 
revolutions, providing cheap labor and resources to become 
manufacturing epicenters. While the U.S. remains one of the 
most productive nations per manufacturing employee, offshoring 
has resulted in a loss of approximately 7.8 factory jobs since 
1979.
    In a positive development, U.S. manufacturing has witnessed 
resurgence in the past few years. In fact, the country's 
exports, a key measure of manufacturing activity, has been 
growing more than seven times faster than GDP since 2005 and 
are now at their highest levels in 50 years. As U.S. 
manufacturing output has increased, the favorable economics of 
reshoring has spurred many U.S. businesses to bring factories 
and jobs back to America.
    A number of factors are leading to reshoring of 
manufacturing to the U.S. First, the competitiveness of China's 
manufacturing hub is eroding. Factory wages have been 
increasing by double digits each year since 2000, bringing 
those more in line with the U.S. manufacturing wages. Second, 
the U.S. is in the midst of an energy production book. Cheap 
domestic energy provides a significant competitive advantage 
for energy-intensive industries, like steelmaking.
    At the same time, overseas transportation costs have 
skyrocketed, increasing more than 135 percent en route across 
the Pacific. These factors have combined to make the U.S. a 
very attractive option for new manufacturing opportunities.
    As such, a recent Boston consulting group report indicated 
a majority of the nation's largest companies, over a billion 
dollars in revenue, are planning to move manufacturing back to 
the U.S. This, in turn, will have such a positive impact on our 
nation's small business community. Many small businesses form 
relationships with larger businesses as suppliers. These supply 
chain relationships inject over $1.5 trillion into our small 
business economy. As more large manufacturers reshore their 
operations, these figures are only going to increase.
    Small businesses have also benefitted from world demand for 
``Made in the USA'' goods and cheap shipping rates. According 
to the census, small and medium sized businesses account for 97 
percent of all exporting firms and sent $460 billion in goods 
overseas in 2012, which is a $10 billion increase year over 
year.
    As the U.S. manufacturing revival continues to gain steam, 
we must be cognizant of potential stumbling blocks. For one, 
U.S. manufacturing has become sophisticated as technology has 
advanced over the past 25 years. This has led to a shortage of 
workers with the necessary skills to work in these factories 
even when there are millions of unemployed Americans looking 
for work. As the U.S. becomes an attractive destination for new 
manufacturing facilities, workforce training programs must 
adapt to provide the skills necessary.
    We must also remember that economic growth depends on 
innovation. Research and development fuels technological 
advancement and is critical in fostering the high-tech 
enterprises that create new jobs. Unfortunately, the federal 
policy shift from domestic investment to deficit reduction 
could have severe implications for U.S. competitiveness in 
international markets and for manufacturing jobs. Going 
forward, we must ensure federal funding for research and 
development is not left on the cutting room floor.
    At today's hearing, we will examine the state of U.S. 
manufacturing and the outlook for future expansion and job 
creation. Over the past few years, the U.S. has closed the 
competitive gap with its overseas competitors; however, the 
manufacturing revival still faces headwinds.
    I would like to thank our witnesses in advance for taking 
time to be here today. Thank you, and I yield back.
    Chairman RICE. Thank you, Mrs. Chu.
    If anyone has an opening statement, I ask they submit it 
for the record.
    I would like to take a moment to explain to you the timing 
lights in front of you. You each have five minutes. The lights 
will start out green. When you have one minute remaining, the 
light will turn yellow. Finally, it will turn red. And I am 
going to be flexible on that, but try to stay as close to the 
five minutes as you can.
    I would now like to yield to Congresswoman Kuster, a member 
of the Full Committee so that she may introduce today's first 
witness.
    Ms. KUSTER. Thank you so much to Chairman Rice and Ranking 
Member Chu for organizing this important hearing on reshoring 
and the trend in American manufacturing.
    By making smart, targeted investments and promoting 
programs that help our manufacturers succeed, we can keep our 
manufacturing sector growing and creating good, middle class 
jobs for years to come.
    New Hampshire is home to approximately 2,100 manufacturing 
companies. With our skilled workforce, first-class 
universities, and community colleges, successful public-private 
partnerships and high-tech businesses, New Hampshire is helping 
to lead an American manufacturing renaissance. During business 
visits through my Congress at Your Company series, I have met 
manufacturers who are committed to developing innovative 
technologies and creating good American jobs, and it is so 
encouraging to see evidence of companies reshoring their 
operations and jobs to the United States and to see talented 
people, like Shirley Mills who is with us today, advocating for 
this critical movement.
    Ms. Mills is a director and senior research analyst at The 
Boston Company and a resident of my district, Windham, New 
Hampshire. She graduated from Columbia University with a BA in 
Economics and earned an MBA from Harvard Business School. Ms. 
Mills started her career at Goldman Sachs, and also worked as 
an analyst at Steinberg Asset Management before joining The 
Boston Company in 2007. At The Boston Company, a global 
investment management firm that uses quantitative research and 
analysis to provide investment advice to clients, Ms. Mills 
specializes in the industrial and utility sectors. Her 
insightful research on the global competitiveness of American 
manufacturing firms and the corresponding rise in manufacturing 
employment in the U.S. is helping to develop a stronger 
understanding of this important trend.
    Last year, I joined her husband, Steve Papa, the vice 
president of Parallel Wireless at a roundtable in Nashua, New 
Hampshire, to discuss developments in our innovation economy.
    Ms. Mills, thank you for testifying today on this important 
issue for American manufacturing, and thank you again, Mr. 
Chairman and Ms. Ranking Member, for giving me this opportunity 
to welcome a fellow Granite Stater to the Small Business 
Committee. Thank you.

  STATEMENTS OF SHIRLEY MILLS, DIRECTOR, THE BOSTON COMPANY; 
ROBERT HITT, SECRETARY, SOUTH CAROLINA DEPARTMENT OF COMMERCE; 
  KEVIN HARBERTS, PRESIDENT/CEO, KRYTON ENGINEERED MATERIALS, 
        INC.; MEI XU, CEO, OWNER, CHESAPEAKE BAY CANDLE

                   STATEMENT OF SHIRLEY MILLS

    Ms. MILLS. Thank you, Chairman and Ms. Kuster for the 
opportunity to speak with you today.
    I would first like to quickly address the dynamics that 
drove manufacturing activity to leave the U.S. and go abroad, 
many of which have now reversed and may be encouraging 
manufacturing growth in the U.S.
    Several years ago I published a white paper on this topic, 
citing a number of reasons for a then potential shift of 
manufacturing capacity back to the U.S. The reasons that I 
highlighted then remain the case today. I would like to quickly 
address each.
    A weaker dollar has played a role in making the U.S. more 
competitive and that has continued to remain low, indicating 
that this trend should continue. Wage differentials, as 
mentioned by Mrs. Chu, have narrowed between the U.S. and other 
key manufacturing economies, both Europe and China. Energy 
costs, due in large part to U.S. innovation and 
entrepreneurialism, have declined in the U.S. relative to 
global levels, which supports ongoing manufacturing strength in 
the United States, as well as expansion of capacity by U.S. 
chemical and refining companies. And in recent years, global 
supply chains and transportation costs have become slower and 
more expensive, and in many ways, riskier and more volatile, 
such that companies are less comfortable taking on the working 
capital needs in order to send capacity abroad.
    So my belief is that conditions do exist for reshoring, and 
it is happening. Recent analysis by The Economist cites 100 
firms that have reshored manufacturing from appliances to high-
tech devices. The Wall Street Journal recently highlighted a 
number of yarn companies that are spending millions of dollars 
on new capacity in North Carolina textile country and hiring 
hundreds of people. None of the companies mentioned in that 
article is U.S.-based, but it is an expansion that is creating 
jobs in the U.S. and opportunities for U.S. companies.
    Sometimes it is difficult to see significant trends in 
aggregate data, so it is worth noting that manufacturing 
employment is improving much more rapidly in areas of the 
United States that are benefitting more directly from lower 
energy prices, and in the economy as a whole, manufacturing 
employment has stabilized for the first time in decades.
    The cited willingness of large companies to invest in new 
capital spending in the U.S. is improving, which is very 
positive for the manufacturing employment outlook. According to 
Consultancy ISI Group, willingness to invest in capacity in the 
U.S. has been improving for the past few years.
    I would like to now address some policies that I believe 
can encourage this reshoring trend.
    The first is policy consistency and simplicity. Constant 
change in the regulatory and tax environment creates a headwind 
to decisions of any sort, particularly investment decisions. 
The industrial management teams I meet with very often cite 
policy uncertainty as one reason they are investing so little 
in the U.S. Comments about the level of policy and regulatory 
uncertainty felt by management teams are so frequent that they 
seem cliched to me at this point.
    With regard to energy policy, this area will become 
increasingly important to U.S. manufacturing in coming years. 
As I am sure you are aware, the U.S. now has minimal exports of 
LNG and crude oil for a variety of economic and regulatory 
reasons. If exports increase, the global price differential 
that I mentioned between U.S. energy and global energy prices 
should narrow, which would weaken U.S. manufacturing momentum, 
particularly in industries with high-input costs.
    As an equity investor, I constantly observe both the 
madness of crowds and the importance of compelling stories, and 
so I would like to highlight the importance of attention to 
success. The dominant story of the 1980s through the 2000s was 
offshoring. In some cases it made economic sense for 
manufacturers, but in other cases, managers simply followed the 
herd. I have now heard many stories in which a narrow focus on 
labor cost has backfired because of quality control 
difficulties, transport costs, working capital needs, 
intellectual property risks, and even eminent domain concerns. 
The dominant narrative does matter because management teams 
tend to follow the herd. Publicize examples of offshoring 
pitfalls and reshoring success. Changing the narrative will be 
an important part of changing the decisions.
    A focus on likely candidates. Some products are more likely 
to be reshored successfully than others, and policy should be 
emphasizing these areas. Products with a higher likelihood of 
successful reshoring include one or more of these 
characteristics: expensive shipping costs; high demand 
seasonality; significant needs for reliable, inexpensive 
energy; a low proportion of costs from direct labor; and a need 
for rapid product development or innovation.
    Michael Porter of Harvard University has written 
extensively on what he calls ``clustering.'' I believe one 
implication of his work is that historically strong regional 
clusters are still likely areas of opportunity. I know a small 
business entrepreneur who began manufacturing mugs in Ohio 
recently after importing them for two decades from China. I am 
drinking from one today. He is from California. His parents 
were immigrants from Germany mid-century, but he found the 
existing infrastructure from Ohio's prior strength as a 
ceramics manufacturing hub helpful, so strengthening and 
building on existing infrastructure will make the decision to 
reshore easier for companies.
    Encourage expansion rather than exciting new facilities. As 
great as new facilities are, the reality is it is much easier 
for companies to expand existing facilities than to start 
things that are new.
    I recently toured a plant in my home state of New Hampshire 
where a mid-sized manufacturer has expanded its capacity at a 
plant that had been in operation for decades, and there they 
did bring some components directly back from a plant in China 
that had been manufacturing them.
    Do not forget the importance of innovation. The reshoring 
trend is due in part to hydraulic fracturing, automation, and 
other technological innovations. That is a strong 
differentiator for our economy, and the government plays a key 
role in basic science research. The private sector only 
emphasizes rapid commercialization at the expense of 
fundamental discoveries. Also, effective immigration for the 
highly skilled and educated is necessary if we are to make the 
most of some of our innovative potential.
    With regard to employee development, access to a flexible 
skilled labor force has become a barrier to U.S. manufacturing. 
More formal job training support should be a key focus, again, 
building on pockets of existing expertise. And in some 
depressed regions, expanded social services may be needed to 
help the long-term unemployed adapt and reenter the workforce.
    Incentives and tax reform are also important, particularly 
with regard to small companies because smaller, more 
domestically focused companies have higher effective tax rates 
than global corporations. According to The Economist, in the 
current tax system, the losers are smaller companies which have 
less room to maneuver.
    Capital access will be addressed by some other speakers 
today, but it remains important, particularly for small 
companies as they try to expand capacity, and the regulatory 
burden for small companies is significant in the U.S. and is 
more important for the smaller companies than for larger. This 
is important to small business prospects because larger 
companies are better equipped to navigate complex regulatory 
environments and may encourage regulations that favor large 
companies. For example, according to The Economist, since 
lobbying is mostly confined to large established companies, the 
question is whether it discriminates against small, innovative 
groups.
    To conclude, time does not roll backwards. For the U.S. 
manufacturing economy and its workforce, the world is much more 
competitive than it once was. It can be tempting to talk about 
jobs coming back, but that is not quite accurate. It is rather 
that incremental investment in American manufacturing may 
create new and different jobs. They may be higher skilled and 
higher paid than those that were lost, but there will probably 
be fewer of them. The broader benefit to U.S. employment, 
particularly low-skill employment, will come from associated 
services, such as trucking, distribution, retail, and banking. 
Efforts to recreate what once was are not the right focus.
    Thank you again for the opportunity to offer my perspective 
on the reshoring of manufacturing to the U.S. as it relates to 
small business.
    Chairman RICE. Very impressive.
    Our next witness is Mr. Bobby Hitt. Mr. Hitt was appointed 
by Governor Nikki Haley to serve as secretary of the South 
Carolina Department of Commerce in January 2011. Mr. Hitt 
brings to his position a wealth of experience and knowledge in 
manufacturing. Prior to his current appointment, he served as 
director of Planning and Development for a firm that helped 
convince BMW to locate an auto assembly plant to South 
Carolina. As commerce secretary, Mr. Hitt continues to work to 
attract new manufacturing investment and business to South 
Carolina, including domestic and foreign firms looking to 
reshore or onshore their manufacturing. And I can tell you he 
is a big reason why South Carolina has had the success it has 
in competing for and attracting jobs.
    Mr. Hitt, thank you for being here today. You may now 
deliver your testimony.

                    STATEMENT OF ROBERT HITT

    Mr. HITT. Thank you very much, Mr. Chairman. I am delighted 
to be here with you and Ranking Member Chu, and Ms. Kuster from 
the Full Committee, and my colleagues here on the panel.
    I thank you for the opportunity to provide testimony today 
on the subject of reshoring of manufacturing in the United 
States and its broader impacts within the business community. 
Many industry observers have been talking about a manufacturing 
resurgence, as my colleague here on the panel has, or 
renaissance, for quite some time. Research coming out of the 
Boston Consulting Group and other groups in the Northeast have 
confirmed this trend as you have heard this afternoon.
    On a national level, between January 2011 and December 
2013, the U.S. added 434,000 manufacturing jobs, a gain of 3.7 
percent. This rebound follows a decade-long decline in 
manufacturing as we know at the national level where nearly 5.5 
million manufacturing jobs were lost, a decline of 32 percent.
    Well, I am happy to tell you, speaking on behalf of South 
Carolina's lead economic development agency, our state is at 
the forefront of the manufacturing revival today. South 
Carolina, while a small state in physical size, has had a 
traditionally-strong manufacturing presence. The sector 
continues to gain momentum.
    South Carolina's manufacturing GDP was $28.7 billion in 
2012. This is approximately 16.3 percent of the state's overall 
economy, a larger share than that of the national economy where 
manufacturing accounts for 12 percent.
    Between the end of the recession, as we recorded in July of 
2009 and December 2013, South Carolina added 15,600 
manufacturing jobs, an increase of 7.4 percent, more than 
double the rate of growth on the national scale over the same 
timeframe.
    According to a report released by the U.S. Department of 
Commerce's Bureau of Economic Analysis, South Carolina is the 
fastest growing manufacturing economy in the southeast.
    The report also ranked South Carolina's economy as the 12th 
fastest growing in the nation and tied with our northern 
namesake North Carolina as the fastest growing state on the 
East Coast.
    We are known as a heavyweight in aerospace and automotive 
sectors, with the highest per capital employment by foreign-
owned companies in the country. The highest. For these reasons, 
the National Trade Press has given us a new moniker. We are now 
referred to as the ``Beast of the Southeast,'' and we are very 
proud of that.
    Twenty years ago, it was a very different conversation. 
Manufacturing was picking up and moving out of the United 
States, and in South Carolina. Hardest hit in our state was the 
textile industry, which shed 60,000 textile mill jobs and 
12,000 apparel jobs over a 10-year period from 1998 to 2008 
just in South Carolina alone.
    At the same time, however, the automotive sector was taking 
route in our state, anchored by German automaker BMW, where I 
spent 18 years of my career and where I developed a personal 
passion for manufacturing. Today, there are 45,000 South 
Carolinians employed by the automobile industry in South 
Carolina.
    More recently, we have successfully recruited the aerospace 
industry to South Carolina, including Boeing 787 assembly 
operation, and our state has three of the top four global tire 
producers.
    There are several factors driving this reshoring and 
onshoring of manufacturing today.
    Logistics is a driving force as companies seek savings in 
transportation costs. Companies are moving back to the U.S. to 
get products to market faster and respond rapidly to customer 
orders in a ``just in time'' manufacturing environment.
    Workforce considerations and a desire to have influence 
over the quality of the finished products are important, as are 
lower energy costs and competitive costs for land.
    Recent announcements reinforce that onshoring is occurring 
in South Carolina. In 2013 alone, nearly $1 billion in capital 
investment and 1,200 new jobs were announced by manufacturers 
bringing their operations to South Carolina from overseas. The 
companies range in size and scope.
    Some recent examples, Silcotech, which is a maker of 
silicon-based injection molding for the medical industry based 
in Canada selected York County for its U.S. plant. The company 
is investing $3.5 million, creating about 50 jobs.
    Last year, three Walmart suppliers announced new facilities 
in South Carolina as part of Walmart's U.S. manufacturing 
initiative. Collectively, these three companies represent 800 
new jobs and about $14 million in investment.
    Importantly, these announcements are occurring in our 
state's rural areas. In the past three years, under the 
leadership of Governor Haley, more than 30 percent of the 
projects we recruited to the state have announced in South 
Carolina nearly a quarter of the jobs created have gone into 
the state's rural counties.
    The Walmart suppliers locating in our state include Kent 
International, a bicycle manufacturer. Bicycles have not been 
manufactured in the United States for a long, long time. The 
second is Element Electronics, a maker of TV sets, another 
product that has not been made in the United States in a long 
time. And yet another one, Louis Hornick, which will produce 
window coverings and home textiles, something that was a 
tradition in our state in the past. Yes, textiles are returning 
as well to the U.S.
    Another prominent example for South Carolina, as well as 
cemented in North Carolina, is the Keer Group, a Chinese 
textile company which decided to build its first plant outside 
of China in Lancaster County, South Carolina, where they will 
produce industrial yarn. The company's $218 million investment 
is expected to create over 500 jobs.
    Of course, when speaking about manufacturing, by and large, 
these are larger operations employing hundreds, if not 
thousands of works who assemble products ranging from cars to 
planes to tires.
    The reason is that manufacturing facilities are becoming 
much more capital-intensive. The average amount of capital 
investment by companies per manufacturing job created in South 
Carolina has more than doubled in just four years' time. In 
2013, this figure was $424,000 of capital per job versus 
$176,000 in 2009, thus, the rapid increase in the ratio between 
capital and labor. This points to the fact that overall most 
manufacturing requires a large amount of capital and is 
difficult to grow to a meaningful scale for traditional small 
businesses.
    Where the small business community typically reaps benefits 
from manufacturing in our state is either by providing a value-
added service in direct support of manufacturing operations 
(such as machining or repair) or providing other services such 
as janitorial, staffing, subcontracting on construction 
projects.
    For South Carolina, the jobs multiplier for automotive 
manufacturing, for instance, is approximately four. There are 
also examples in our state of manufacturing contract work that 
has been onshored to manufacturing operations of fewer than 100 
employees. This includes companies like Sargent Metal, which 
contracts with Otis Elevator and ADEX Machining, which provides 
value-added work for the aerospace sector.
    The Department of Commerce's mission is to recruit 
businesses to the state and to help existing business grow. 
Commerce has positioned itself as the state's business agency 
no matter the size of that business, an area we have strived to 
augment over the past three years as our small business area, 
which offers resources and programs specifically aimed at the 
small business community.
    These programs, including export assistance, which has been 
the beneficiary of federal funds from the STEP program (State 
Trade and Export Promotion). From 2011 through 2013, our staff 
helped 59 small and medium-sized enterprises enter export 
markets resulting in almost $4 million in new sales.
    Additionally, we have hosted a series of events, pairing 
small business owners with prospective lenders--something akin 
to ``speed dating'' as we call it for acquiring a business 
loan.
    The Department of Commerce works to connect the dots 
between small business and large industry.
    One recent success is Continental Tire, which is investing 
a total of $500 million and creating 1,600 jobs in Sumter, 
South Carolina. The tire maker announced in January it has 
awarded some $100 million in contracts to South Carolina 
companies to date, an example of the ripple effect that occurs 
when a company of its scale locates in our state.
    There is more and more detail; I could go on and on.
    In closing, South Carolina is benefitting in a large way 
from the manufacturing investment, and I believe there will 
continue to be opportunities for our small business community 
to profit from the manufacturing renaissance. The adage, a 
rising tide floats all boats, certainly fits, and I thank the 
leadership and the Committee for allowing me to testify today.
    Chairman RICE. Thank you, Mr. Secretary.
    Our next witness is Kevin Harberts. Mr. Harberts serves as 
president and CEO of Kryton Engineered Materials, a small 
manufacturer of spun and fabricated medical components located 
in Cedar Falls, Iowa. As a supplier to other assemblers and 
original equipment manufacturers, Mr. Harberts has seen 
firsthand the benefits of manufacturing reshoring for his 
business and community.
    Mr. Harberts, thank you for appearing today. You may now 
deliver your testimony.

                  STATEMENT OF KEVIN HARBERTS

    Mr. HARBERTS. Good afternoon. My name is Kevin Harberts, 
president and CEO of Kryton Engineered Metals in Cedar Falls, 
Iowa.
    Founded in 1981, Kryton Metals is an industry leader in 
manufacturing spun and fabricated metal parts. We service a 
range of industries, including foundries, ventilation, 
lighting, aerospace, and some automotive. Many of our products 
contribute to enhancing the nation's energy efficiency, and 
some are installed in LEED-Certified buildings across the 
country.
    Last year, we had 63 employees; today, we have grown to 71 
and hope to hire another 8 to 10 this year. We attribute this 
growth directly to reshoring--a product line which left the 
U.S. a decade ago and came back to America's heartland. But to 
understand our growth, you first have to understand how we got 
there.
    Like many others, the Great Recession hit us hard in 2008 
and 2009. We had to let go 35 employees. For any family-owned 
business, this is one of the most difficult things that you can 
go through, but it was necessary for us to survive.
    Then, about two years ago, a company sourcing from Europe 
was exploring whether they could return the manufacturing to 
the U.S. to serve the North American market. Location was 
important, but the real test was price. In our industry, a 
price differential of a fraction of one penny can mean the 
difference between getting the job and missing out.
    We were not in a position to hire more employees to meet 
the demand, so like all manufacturers, we had to learn how to 
do more with less. The company did invest in increased 
automation to meet their target prices.
    Our customers slowly began transferring the work to our 
shop in Iowa, and now we are looking at a $5-6 million product 
line. For a $10 million a year company, this changed the fate 
of our business and the lives of our employees.
    Prior to reshoring its business from overseas, the customer 
had to wait two months to receive the product. After reshoring, 
its delivery time went from two months to two weeks. They can 
now develop new products for it in a matter of weeks rather 
than wait for a ship to cross the Atlantic.
    The decision of our customer to supply from Kryton Metals 
will carry us into 2020. We are going to save our customer 
money, grow our business, and most importantly, create jobs in 
Iowa and throughout our entire U.S. supply chain.
    These kinds of opportunities just do not happen often in 
our industry. In convincing the customer to bring the work back 
to the U.S., we not only created jobs at Kryton, but we created 
jobs for our suppliers and vendors as well. For example, my raw 
material purchases have increased fourfold due to this reshore 
business. This is an important point about the manufacturing 
industry. Not only do we directly employ 12 million Americans, 
but our industry indirectly supports a combined 18 million 
jobs.
    While we are currently growing, we struggle to find 
qualified employees to fill our job openings. Kryton Metals 
hopes to hire another 8 to 12 more Iowans this year, a 
significant expansion for a small business. These are not 
minimum wage paying jobs. For some of my openings, the starting 
salary is $70,000-$80,000 a year plus benefits.
    In addition, the uncertainty in Washington is not helping. 
While politicians argue among themselves, employers like me are 
stuck in a holding pattern. We do not know whether Congress 
will extend the R&D tax credit, we are unsure what new rules 
OSHA and EPA will impose on us, and we cannot find qualified 
workers in large part because Congress has not updated our jobs 
training law in over a decade.
    Kryton Metals future looks pretty sunny at the moment, but 
manufacturing's future is incredibly cloudy. Although the 
economy is improving, it is not doing so at the rate we need. 
To improve manufacturing's forecast, we must look to overseas 
opportunities and convince foreign customers that the U.S. is 
the best place for manufacturing. We are doing our part to 
encourage reshoring; now it is Washington's turn.
    Thank you for allowing me to testify today and to highlight 
the great story that is manufacturing in America.
    Chairman RICE. Thank you very much, Mr. Harberts.
    Mrs. Chu, if you would like to introduce our next witness.
    Ms. CHU. It is my pleasure to introduce Ms. Mei Xu. She is 
the CEO and cofounder of Chesapeake Bay Candle. This company 
produces high-end scented candles and is one of the most 
popular candle brands around the world and is sold in major 
U.S. retailers, such as Target, Kohl's, and T.J.Maxx. She is a 
small business that has over 100 employees in the U.S. She was 
manufacturing abroad, but when the decision came to set up a 
new plant, she decided to locate it in the U.S. She recently 
spoke at a roundtable at the White House on insourcing American 
jobs, and she talked about the factors in her decision and what 
America needed to do to encourage this. She is a very 
successful entrepreneur and an outstanding spokesperson.
    Ms. Xu.

                      STATEMENT OF MEI XU

    Ms. XU. Thank you for inviting me, Chairman Rice and 
Congresswoman Chu, and distinguished members.
    Our company, Pacific Trade International, is one of the 
leading home fragrance suppliers in the U.S., with brands like 
Chesapeake Bay Candle, BlissLiving Home, and Alassis. We 
generate over $60 million in revenue each year and employ about 
130 people in Maryland. We supply home fragrance products, from 
candles, diffusers, and other accessories, to major retailers 
such as Target, Kohl's, and now also Bloomingdale's.
    Since 1994, our products have been produced and sourced 
mainly from China and then Vietnam. We hold an ownership stake 
in both of these facilities and depend on a reliable, high 
equality supply chain. In the middle of the financial crisis, 
like my partners have just spoken, we have seen a rapid 
increase in the cost of labor, freight, and materials in Asia, 
while demand has increased from our retail partners for faster 
replenishment cycles as well as their need for lean inventory. 
The pressure on costs and inventory led our company to become 
one of the earliest proponents of the insourcing trend.
    The following reasons pushed us to make the U.S. our final 
destination for manufacturing operations, rather than 
considering traditionally less expensive candle destinations, 
such as Mexico and Poland.
    The number one reason is speed to market. Our U.S. factory 
can deliver replenishment orders within one week versus four to 
five weeks from Asia. This makes our factory attractive for 
retailers, particularly on seasonal-sensitive products, such as 
your Pumpkin Spice and your Christmas Tree Scent.
    The second reason is the cost of shipping and logistics, as 
Mrs. Chu has mentioned. In the middle of the financial crisis, 
when everything else has been in confusion, the biggest thing 
that is for sure is the rising cost of transportation due to 
oil price increase. This decision helped us avoid transnational 
shipping and rely only on domestic shipping, and it cut 
unpredictable cost variations due to oil prices and the 
constant demand and supply changes that impact oceanliner 
prices.
    The last reason is production cost. Automation made it 
possible for manufacturing in the U.S. to be comparable to that 
of Asia.
    Once we made the decision, we quickly decided to look at 
Maryland as our destination because we wanted to make the link 
Chesapeake Bay Candle to the manufacturing facility. We looked 
at miles and miles of unoccupied warehouses along the 695 
corridor. Many of you might have visited. It is heartbreaking 
to see that so much manufacturing has left Maryland, and one 
out of every four blue collar workers in the county of 
Baltimore are unemployed. We decided to build our factory 
there, taking advantage of the abundant warehouse space as well 
as give back to the community that has given us the brand and 
its reputation.
    Built without government incentives or support from local 
agencies, PTI's new factory in Glen Burnie, Maryland, was 
budgeted to cost approximately $4M in capital investments, 
working capital for start-up, and inventory.
    We were unable to identify any source of available 
government financing that did not require a lengthy application 
and approval process. The Maryland Economic Development Council 
offered the possibility of low interest rate financing, but the 
review process proved to be too lengthy and the funding limits 
too restrictive to meet our needs. In the absence of viable 
funding options, the company proceeded with the project on its 
cash reserve and our own savings.
    The time to completion for initial lease execution was 
planned to be approximately six to eight months with completion 
planned for Q4 of 2010. In reality, Maryland has not seen 
manufacturing in the last 20 years. It was very confusing to 
even ask where do we look for guidance for meeting the code 
that is required to open a facility. We were directed to one 
clerk in the County of Anne Arundel and he threw three big 
books the size of your Yellow Page telephone numbers. One was 
for hospitals, one was for nursery schools, and one was for 
restaurants, and he made us read all of them in order to meet 
the codes that maybe will meet the requirement.
    Such delays and confusions end up costing us five months 
and $2 million extra to finish the project. We managed to open 
the business. There is a timeline here that really gives you a 
clear definition of where the delay comes from but I would 
eliminate all these details. Since opening in 2011, the 
Chesapeake Bay Candle factory has now grown from 17 employees 
to over 80, and projecting to over 100 by the end of the year, 
and tripled production capacity. It is now one of the leading 
new job creators in Anne Arundel County, and I heard there is 
going to be a job opening for the big casinos, so we are very 
concerned about that competition.
    The company faces challenges in finding quality employees. 
Most applicants lack sufficient skills or training. Basic 
reading, writing, and arithmetic skills are often not available 
and many are unable to follow instructions or function in a 
modern, collaborative production environment.
    To combat a 50 percent turnover rate in these jobs, 
additional incentives are being considered by our company. The 
local area has also suffered from a lack of qualified mid-level 
supervisory talent and engineers reflecting----
    Chairman RICE. Ms. Xu, I am sorry. We have got to go vote. 
We have got 2:59 to get over there. We are going to stop the 
hearing, just recess it. We will be back in about 30 minutes. 
Okay?
    Ms. XU. Okay.
    Chairman RICE. So 30 to 40 minutes, and I will adjourn for 
recess right now. We will be back shortly.
    [Recess]
    Chairman RICE. The hearing is resumed, called to order.
    Ms. Xu, if you would like to continue with your opening 
statement.
    Ms. XU. As I concluded, as we are growing, the local area 
in Anne Arundel County also suffers from a lack of qualified 
mid-level supervisory talent and engineers, reflecting the 
absence of relevant vocational training and a vanishing 
ecosystem of other manufacturing companies.
    Here are some of our recommendations to the Committee to 
help create more manufacturing jobs.
    One, create regional advisory offices within the U.S. 
Department of Commerce or as an extension of the Small Business 
Administration to help small and mid-sized businesses navigate 
state, local, and other regulatory requirements. Many investors 
may not know how to determine which state best fulfills their 
manufacturing and business needs, and a federal level review of 
each state will help speed up the selection process.
    Two, through the same mechanism, guide companies to 
relevant incentives for tax breaks, financing, training, and 
other programs, whether sponsored by local, state, or federal 
entities.
    Three, provide a resource guide specific to new 
manufacturing ventures to help identify local suppliers, 
private developers, and other assets critical to startups. And 
I also would like to recommend a state-level, one-stop 
concierge service to help new investors understand compliance 
issues and the procedures related to a building manufacturing 
facility so that they can make more informed decisions.
    Five, encourage local high schools and vocational colleges 
to provide gateway programs to internships and apprenticeships 
for local manufacturers to draw upon us as a resource for 
qualified talent.
    To close, I would like the Committee to think about helping 
small business owners in particular in financing and tax breaks 
since all capital investment has become increasingly 
challenging because of the size and difficulty for banks to 
give loans.
    I want to once again thank the Committee for allowing us to 
share the journey of our determination and our challenges. I 
hope that we would help educate Americans that we should be a 
nation that not only consumes and purchases goods, but also 
manufactures them and hope that we would cultivate an 
appreciation for manufacturing and for ``Made in USA.''
    Thank you very much.
    Chairman RICE. Thank you, Ms. Xu. Very impressive.
    I now yield to the ranking member for her questions.
    Ms. CHU. Thank you, Mr. Chair.
    I will start with Ms. Xu. In your testimony, you listed 
several reasons that led you to decide on the U.S. as the 
location for your new manufacturing facility. As one of the 
business leaders pioneering the reshoring of jobs to the U.S., 
how do you think the federal government can best reach out and 
help other businesses who might want to consider the U.S. as 
their manufacturing destination?
    Ms. XU. I think one of the main challenges has been echoed 
by Ms. Mills, is the complexity of different state 
requirements, coding, and regulations. For federal government, 
mainly I think from the Commerce Department of affiliations. 
Maybe we can start looking at a one stop shop to inform 
everyone in this particular area where to find the answers and 
also to work with SBA for facilitating the necessary funding 
that manufacturing investment needs.
    Ms. CHU. I know that your business will probably continue 
to grow. What would be the most important factor affecting your 
decision to continue manufacturing in the U.S. and perhaps even 
expand operations here?
    Ms. XU. We definitely are determined to grow as our 
demands, our orders, actually every month is exceeding our 
capacity. The biggest challenge is now people. We do not have a 
very good answer on how to have a program that can help us to 
find people that is for high school or even some college degree 
because the mentality of working on a factory floor is a very 
different one than what we can find.
    I heard in Michigan, when I was joining the White House 
forum, that they set up training workshops close to big 
manufacturing facilities. For four to six weeks, they have high 
school kids that go to those programs and learn the ABCs of 
what a manufacturing company work environment is so they 
mentally are trained to enter the workforce. And I would hope 
that states and the government can think about such programs.
    Ms. CHU. Okay, thank you.
    I would like to ask this to the entire panel and that is 
there are many small manufacturers with growth potential that 
may not seek assistance with operations, marketing, and finance 
because they are simply unaware that it is available. However, 
the SBA has many entrepreneurial development programs, 
including the Small Business Development Centers and the 
Women's Business Centers. What could we do to increase the 
awareness amongst the entrepreneurs of the SBA's business 
counseling services?
    Mr. HITT. I will go first. I agree with you, Congresswoman. 
When we came in we saw a number of agencies trying to provide 
the same services but doing it in a way that people could not 
find them. We brought all of those together. I brought a team 
in. We built the website that we have so that someone can go in 
and put in the name of the county they are in, they can put in 
the type of business, the size of it in terms of its capital 
and its program, and it is sort of a decision tree that starts 
bringing you down to the programs that are applicable. It is 
hard to look at the array of programs out there for an average 
person and try to sort out what is applicable to them. So we in 
government, at the state level and federal level, ought to do 
those things together in order to make it easier for them. I 
have this belief that there are people at home at night at 8 
o'clock on the web trying to find a way to expand their 
business and find capital and looking for people like them that 
they can interact with, especially with entrepreneurs. We need 
to do more of a job of being an enabler to help them find those 
programs.
    Mr. HARBERTS. I would just actually reiterate what he is 
saying as well. We took advantage of SBA. Seventy years ago was 
probably our last time that we used them, but the complexity 
that we ran into in the rules and regulations, we got bogged 
down in that and we just did not have anybody to help us. So we 
have not used them since. But I think if they can streamline 
that a little more than it is already, make it easier, it would 
be a win-win.
    Ms. XU. I am thinking that because most of the SBA programs 
to sponsor or guarantee a commercial bank to offer loans. So 
working with commercial banks and letting commercial banks be 
the ambassador for those programs because a lot of the small 
businesses deposit with banks, so making them be the advocate 
of those programs and the informers of those programs held 
special events for SBA to come to local branches where small 
businesses tend to gather is a great grassroots level awareness 
to raise.
    Ms. MILLS. I agree with all of those. I would also 
highlight that you could use word of mouth. There are 
organizations that particularly small business entrepreneurs do 
not have peers that they can frequently speak with about these 
things, and so oftentimes they join organizations like YPO and 
some others. And if that can help spread the word, then that 
would be a way that they could learn.
    The other thing is just I do some additional work with 
financial literacy and financial capability, and one of the 
things that shows up repeatedly there is that people do not 
absorb things until the moment at which they need the 
information. And so finding ways to insert that relevant 
information into the decision point when it becomes relevant--
for example, potentially with the commercial banks--would be, I 
think, the best way to do it because although people do sit at 
home at 8 o'clock every night, I think you are completely 
right. They probably do not necessarily notice what they might 
need a month from then when it comes to that decision point. So 
both of those things. I think that the decision tree is 
brilliant and the website is a great idea, but I would also try 
to insert it when the decision is being made and when the 
regulations are being dealt with.
    Ms. CHU. Yeah. Very good point.
    Ms. Mills, you mentioned in your testimony that access to 
capital continues to be a challenge to small businesses trying 
to expand. This is one of the most critical issues particularly 
for this Committee. Can you expand on specific policy 
recommendations this Committee could take up to expand access 
to capital to small businesses, especially those in 
manufacturing?
    Ms. MILLS. Yes. I think this is a complex area because 
typically it is not the best idea for the capital to be coming 
from the government. You are trying to incentivize banks and 
commercial lenders to be willing to loan to a circumstances 
that to them I think seems quite risky. So ways to mitigate 
that risk, I am not sure exactly what those would be, but 
receivables, financing, things like that might be helpful.
    I think the others on the panel might have some additional 
thoughts.
    Mr. HITT. Well, we are starting to see different kind of 
equity organizations be created, including business 
development, corporations, and the like. For reasons, and I 
have no banking experience so I cannot really speak to it, but 
what we constantly are being told is that the old way, when I 
was young, where you would borrow and grow, is no longer really 
a viable way in the current banking system. You cannot go in 
and borrow money to grow. You can only borrow money if you have 
the assets and do not need them, so to speak.
    But we have crowdfunding bills coming up. We have got a 
whole variety of things coming in, which is an indication to me 
that the system that we once had has become impenetrable, and 
therefore, typical of the American way, there are many 
different answers being created. Whether they will solve the 
problem or do it fast enough or with the speed that we want is 
another matter altogether. But there are a lot of different 
avenues out there.
    And when we talk about the government, I mentioned in my 
testimony what we call ``speed dating.'' And what we do is we 
do these in different towns and communities around the state, 
and we bring all the lenders into a big room and we invite all 
of the small business contacts we have had into the room and 
lock the doors and make them get a loan. It works. Actually, we 
make it a little more fun than I am making it sound.
    Ms. CHU. Well, let me ask Mr. Harberts a question about you 
talked about having trouble finding qualified workers for low 
and mid-level positions. And in his budget, President Obama 
recently proposed over $7.7 billion in new funding for 
apprenticeship programs and job training to help eliminate the 
skills gap. Do you think this would be helpful in closing that 
skills gap and perhaps in getting our 10.5 million unemployed 
citizens and the underemployed back to work?
    Mr. HARBERTS. Absolutely. I think that will help. I have 
been looking for a robotics engineer for almost two years, and 
in our area, John Deere has a huge presence and Rockwell 
Collins. And as a small employer, those guys get everybody that 
comes out of the community colleges. They are only graduating 
about 20 to 25 kids a semester and most of those kids are 
spoken for in their first six months of their apprenticeship. 
And I do not have a chance to get any of these guys. But I do 
think that will help. Definitely will help. But it is a 
challenge for a small entrepreneur versus a big corporation in 
attracting these kids.
    I go into the high schools and junior highs myself and I 
speak to these kids to try to get them interested in 
manufacturing because a lot of times kids equate manufacturing 
to what it was back in the `40s. It is not. It is not a dark, 
dungy old oily factory. It is high tech. And whatever we can do 
to encourage that thought is good. So I do a lot of that. But I 
think what President Obama has done is definitely going to go a 
long way to helping.
    Ms. CHU. And Ms. Xu, I have a feeling you have an opinion 
about this.
    Ms. XU. Well, it goes back to letting us have some pride in 
making things again because not everyone is cut to be Bill 
Gates. Let us say there are still those of us who are creative 
and who enjoy making the most delicious cookies or beautiful 
candles.
    And there should be another thing about ``Made in USA''. As 
a lot of Asian countries are different in terms of the trust of 
their manufacturers and in processing food and in other 
products, consumer products. We have a great chance to export. 
``Made in USA'' stands for authenticity and a great consistency 
and quality, so there is a huge demand now. If you look at a 
lot of malls, you can see a lot of foreign people with luggage. 
They are buying up things--our chocolate, our coffees--because 
they think there is nothing they should worry about in quality. 
So I hope that the program really goes down to the level of 
training high school kids, not people already having a lot of 
job offers because that is a real gap that is existing.
    Ms. CHU. Okay. Thank you. I yield back.
    Ms. MILLS. May I share a few thoughts on that?
    Ms. CHU. Oh, of course.
    Ms. MILLS. If you do not mind.
    So three thoughts. The first is the people I speak with run 
a lot into absenteeism in addition to issues with skills, and 
it is not always as simple as just providing the skills. 
Sometimes there are cultural dynamics at work as well and 
incentives may be necessary in order to get people to 
understand that the regularity of the structure of working in a 
job like this is different than what they might be used to. And 
the other thing is I think what I heard in some of the comments 
I would like to tie back to something I mentioned which is the 
importance of the story of success here because when you put 
lenders in a room with manufacturing companies and you tell 
them you need to lend to these companies to grow, if they still 
believe in the decline of American manufacturing it is a very 
different conversation than if they understand that things are 
really changing. And that also matters a lot in terms of 
encouraging people to go into the types of programs that will 
create those robotics employees. So it is a soft thing but some 
of the things that can be done are just creating these success 
stories and making them more public so that people have a 
different frame of mind, but the apprenticeships are an 
important part of it. But on-the-job training typically is more 
successful than structured programs.
    Ms. CHU. Thank you. And I yield back.
    Chairman RICE. Thank you, Mrs. Chu.
    Mr. Harberts, I am going to start with you because you said 
something I was interested in. You were talking about the lack 
of skilled labor, and it is fascinating to me to see the high 
rate of unemployment of people coming out of typical four-year 
colleges who have majored in areas that may not be as 
employable, and yet in our area, for example, we have a 
technical school called Florence-Darlington Tech, and they have 
a very advanced CDM program (computerized digital machining). I 
was talking to the guy. In fact, he came and testified here six 
months ago. And they can take, I believe it is 80 students a 
year. It is a two-year program. And first of all, they cannot 
find enough people to sign up for it. And the worst problem 
they have is they cannot get people to graduate. Do you know 
why they do not graduate? They get the jobs before they 
graduate. Because after the first year they are hired away at 
high salaries and they cannot get them to finish the program.
    So we absolutely have a mismatch. And the really bothersome 
thing about that is that some of the neighboring counties to 
this area have some of the highest unemployment in the state. 
In Marion County, South Carolina, we have 15 percent 
unemployment, and yet they cannot find enough students to sign 
up for this program with 100 percent placement rate. So it 
truly is, there is a big mismatch, and how we fill that, that 
is an interesting problem.
    Ms. Xu, you were talking about--do you export now or were 
you talking about the prospect of exporting?
    Ms. XU. We are very happy to say we are exporting from day 
one. Of course, to our neighbor Canada, Australia. Now we are 
also going to be in China.
    Chairman RICE. What port do you use, or do you know?
    Ms. XU. Port Baltimore and California.
    Chairman RICE. You know, one thing that serving on this 
Committee and on the Transportation and Infrastructure 
Committee and learning about the need to have ports that can 
accept these Panama Canal ships, post-Panamax ships.
    Ms. XU. It would speed things up.
    Chairman RICE. Well, it drops the cost of shipping. So it 
will cost instead of $3,000 a container, it will cost $2,500 a 
container. So if you are sending a container of candles to 
Australia and you can do it $500 cheaper if you can take a 
post-Panama Canal ship.
    Ms. XU. And to Mexico.
    Chairman RICE. Or if you do not have access to that ship 
and the guy up the road does, who is going to have a 
competitive advantage? So we need to make sure that our ports 
can accept these things. And the problem is the federal 
regulatory requirements are so strict on digging out of port.
    Mr. Hitt, do you know how long Charleston has been working 
on getting their port dug out?
    Mr. HITT. Yes, sir. It has been a long time.
    Chairman RICE. It has been years and years, has it not?
    Mr. HITT. Yes, sir. I believe the study is going to start 
this year, however.
    Chairman RICE. Port Everglades has taken 15 years to get 
approval. Fifteen years.
    Mr. HITT. Congressman, as you remember, we funded it from 
state level because we could not wait any longer.
    Chairman RICE. Yes, sir. And I worked hard on getting that 
language in there for you on the water bill.
    Mr. HITT. Yes, sir. You did.
    Chairman RICE. But, no. It is a huge problem. Everybody up 
here has talked about the federal regulatory web and how it 
stifles business growth and competition.
    I come from a background of local government. I was 
chairman of a county council and we decided we were going to 
get in the economic development business and it worked. And we 
decided to compete. Charleston County competes with Savannah 
County and counties in Georgia and counties in North Carolina 
and counties in Tennessee. The state of South Carolina is doing 
a pretty effective job of competing for jobs. Not necessarily 
taking jobs from other states, but where is that business 
coming into this country going to locate? And this man right 
here has been responsible for a lot of that competition, a lot 
of that success in competition.
    Mr. Hitt, what I want to know from you is, and I also want 
to know this from you, Ms. Mills, do you think the United 
States is doing an effective job of trying to compete for jobs? 
Do you think we have an attitude like a lot of our states have 
and like a lot of our local governments have of let us go and 
figure out why we are not competing and let us compete? I want 
to know if you think we are doing it, and if you do think we 
are doing it, what entity in the United States government do 
you think is doing that?
    Mr. Hitt?
    Mr. HITT. We are not competing as effectively as we could. 
We are successful in much of our international efforts because 
we have such a strong consumer market and companies want to 
come here because they want to learn and be able to increase 
their penetration of this market. My company, BMW, was one of 
those 20 years ago. I think we lack competition because we do 
not have a sense of certainty in terms of our budgets. We do 
not have a sense of certainty in terms of the tax programs that 
we have in the United States. One of the things that we do when 
we are attracting companies to South Carolina is we sit down 
and lay out to them 30 years' worth of tax issues for South 
Carolina and how they are going to be managed. We tell them 
this is it and then we stay with them.
    So predictability is such an important thing in business. 
Companies, especially companies from around the world that 
might have to deal in multiple currency and capital and 
treasury systems, they need to be able to predict. As you know, 
as a county councilman, the predictability of local taxes which 
we have a mechanism for in South Carolina, we can even equalize 
them over a long period of time, even with increases in 
investment a lot time and relevel them. That was more important 
to my old company at BMW than the rate, was the ability to 
predict what was going to happen next so they could compete on 
a worldwide stage.
    Companies like that come to South Carolina. We have become 
the number one exporter of tires, the number one exporter of 
cars, and the reason is because it is cost effective to build 
material there and sell it around the world. That is because it 
is predictable. And if the U.S. was more predictable it would 
be good.
    Also, I would mention on the issue of engineers and such, 
if I walk into an engineering classroom at Clemson University, 
which is our major engineering school, half the students in 
that class will leave this country when they graduate because 
they are not native to our country. And as a result, we have a 
great drain the way we train and then do not have the 
opportunity to use those folks. That is a difficult thing.
    I was with an international company, and the ability to 
move people around and to manage that brain trust and be able 
to learn from each other across different cultures and expand 
our productivity and the like is lost because we simply do not 
have the swiftness with which to do that anymore.
    Ms. MILLS. I would say the answer to your question is no. I 
do not see that happening in the way that you implied might be 
helpful. And I agree that it would. And I would highlight that 
when I meet with management teams what I hear frequently is 
that other countries have a much more cohesive strategy and 
offer them things that seem much more transparent and much more 
clear. Over time, they often learn that what they believe from 
other countries would be transparent, clear, and 
straightforward is not. And part of what is happening with 
things beginning to come back is people are realizing that what 
they believed was certainty abroad was not certainty after all 
and that, in fact, there is more equality in that dynamic 
between the United States and other countries than they had 
thought when they initially moved things abroad.
    So I agree that the inconsistency is a problem and the 
constant change is a problem and that there is a lack of 
strategy and a lack of focus in trying to communicate to people 
the things that are worthwhile and the things that are good. 
But I actually think on the margin it is getting better and if 
it begins to be encouraged that it could be quite important.
    But, for example, something that I am hearing about a lot 
right now is this question about export of crude oil. And if 
you are trying to decide whether to build a refinery or whether 
to build a chemical plant, whether to add a lot of new tank 
cars so that you can move crude around the country, that has an 
absolutely massive impact on your investment decision and there 
is very, very little uncertainty around it because the 
discussion changes from day to day. And that delays investment 
and growth that would be happening right now likely if that 
were not the case.
    Chairman RICE. Something that really comes to my mind is 
something I have been working on and something that is really 
bothersome to me as my history as a tax lawyer and CPA. The 
Affordable Care Act is a pretty big factor to companies, 
particularly those that employ over 50 people. And when we have 
these things, these aspects of it changed every month, does 
that affect companies' decisions? Does that uncertainty that it 
creates affect hiring decisions and so on and so forth?
    Ms. MILLS. It is part of the conversation. So what I have 
been hearing from people recently is, for example, frustration 
about the fact that they are not certain they can get people 
the quality of care they need if they need to shift them, and I 
do not see it affecting investment decisions as much as I see 
it part of the overall culture of confusion and lack of 
clarity. I think that from a tax perspective, something that is 
much more significant is the complexity of managing the tax 
code and the fact that that gives such an advantage to larger 
companies, particularly companies with operations abroad that 
can appropriately or otherwise--not passing judgment there--can 
use transfer pricing to make certain that their profits are not 
in a higher tax location. So I would point to tax 
simplification as something that I think is much more 
significant.
    Chairman RICE. What about tax rate?
    Ms. MILLS. Less important.
    Chairman RICE. Less important. Even if we have the highest 
rate in the world?
    Ms. MILLS. We have the highest rate in the world only on a 
statutory basis, not on an actual paid basis. And when you 
actually adjust for a lot of things in other countries that are 
taxed in different ways--for example, higher payroll taxes, 
other things--I believe, based on the research I have done, 
that our tax rate compared to many other places is not really 
that out of line. Now, if companies can shift to Ireland and 
pay zero percent tax rate, which is what is now being done by 
some pharmaceutical companies----
    Chairman RICE. Canada?
    Ms. MILLS. Not as big a difference, but I am not as 
informed on that. The overall global tax structure that exists 
right now is about to send things I think into an unpredictable 
environment because of what is happening with being able to 
pull companies to locations that have extremely low tax rates.
    Chairman RICE. Mr. Hitt, what do you think about that?
    Mr. HITT. I think the air of confusion that Ms. Mills is 
talking about, whether it be with healthcare, with tax 
structures, or what have you, it creates a perception of not 
great stability. Companies look for stable environments in 
which to be able to predict outcomes. They have a lot of 
variables. Any manufacturer is faced with new variables every 
day. They are trying to have predictability. So I hear from 
companies. They talk about healthcare; they talk about the 
confusion. They talk about taxes; they talk about the 
confusion. They talk about the differential should one of their 
suppliers be in Mexico because Mexico has a tariff advantage. 
If we are going to export from the United States, our advantage 
is less than Mexico's advantage. The view is that no one is 
paying attention to our advantages.
    Chairman RICE. Ms. Mills, you mentioned Michael Porter, and 
I am a Michael Porter disciple. And he has written a menu of 
things. He is a specialist in national competitiveness. And his 
menu includes sustainable federal budget, high-skilled 
immigration reform, corporate tax reform, international tax 
system rather than taxing global earnings, Internet trade, 
reform of the trade system, streamlined regulation, which I 
think everybody up there, every one of you guys mentioned 
regulation is a problem, infrastructure improvement, and 
reasonable, responsible development of shale and oil gas 
reserves. So in my opinion, if we get the cost down here, maybe 
we do not have the lowest wages in the world, but maybe some of 
these other costs being lower can help. I do not want to 
compete for low wage jobs. I mean, I do not want to compete for 
minimum wage jobs. I want good, high-paying jobs.
    Ms. MILLS. I think one of the things we are all saying is 
that good, high-paying jobs also create more minimum wage jobs.
    Mr. HITT. Correct.
    Chairman RICE. Right.
    Ms. MILLS. And that those are an important thing to have as 
well.
    Chairman RICE. So if you look at this list, how do you 
think--I am going to go to you, Mr. Hitt, because you are doing 
it in South Carolina right now. How do we start working towards 
these things at a national level? It seems to me that we need 
somebody focused on this, on competing. Do you have any 
suggestions for us? How do you do it in South Carolina? How do 
you pull all these entities together and say we need to do 
these things to compete?
    Mr. HITT. Of course, in most of the states we have balanced 
budgets. We have predictability on many of these things. We are 
much smaller. We have the ability to pull together the 
regulatory structures. We house the Small Business Regulatory 
Commission inside our agency where we go in and we start 
striking through the things that are a problem, bring them up 
and bring them to the legislature or the appropriate agency. 
There needs to be some kind of clearinghouse.
    Porter's position is, I think, pretty similar to what you 
are hearing from this panel, and that is we need stability, 
predictability. In order to do that, someone has to be 
watching. Someone has to be measuring. I mean, in the 
manufacturing world where Mr. Harberts comes from and I come 
from, you measure everything. And we need to measure what is 
having an ill effect on our competitiveness. We can be more 
competitive as a country. I will tell you, we do not seem to 
have the attitude to be as competitive to the rest of the world 
as parts of the rest of the world have to be competitive with 
us, which is why we hear about Brazil and why we hear about 
what is going on in China and Indonesia and India and other 
places. And when we go and look at the secrets there, what you 
find very quickly is you have predictability in those markets 
that had been created by having--whether it is through a 
commerce function or other function, the one-stop Ms. Xu asked 
about where someone can come and find out how do I do business 
here? Almost half of our new investment in South Carolina each 
year is foreign. We are talking with people from all over the 
world. They want to know how do you do it here. I have had them 
ask me, ``Can you tell me what is going on in your federal 
government?'' I have literally had them ask me that. And I will 
tell them, ``Well, we will take care of you here in this 
state.'' Because there is such a perception that there is not 
stable, predictable environment. So it is heard, whether it is 
healthcare, whether it is regulatory issues, not funding 
infrastructure and the like, all of these things.
    I had a very wealthy couple that I met with and had 
breakfast with this morning that employ 80,000 people worldwide 
and are looking to make their first manufacturing investment in 
the United States, and they asked me what kind of investments 
were we making for the future in South Carolina. And I was 
happy to be able to tell them we were investing about $2 
billion in our port and logistics system, railway system that 
is under our operation in the Commerce Department, because we 
are preparing to be even better and faster at logistics for our 
manufacturers in the future. So companies are asking us what we 
are doing to enable and prepare them to be competitive in the 
future. I think the states that do the best job at that will 
win. I hope mine is one of them.
    Chairman RICE. Well, see, you just heard that attitude of 
competitiveness right there. Did you hear that?
    Ms. MILLS. I would like to hear more of it.
    Chairman RICE. My question to you is can you give me any 
suggestions on how we create that attitude of competitiveness 
at the national level? Any suggestion? I know that is an 
oddball question that you did not see coming.
    Ms. MILLS. So you talked about measuring. Manufacturers 
measure things. We are all sitting here talking about whether 
this is happening. Right? We are pointing. We are like a blind 
person trying to describe an elephant by touch. We are saying 
this is happening in South Carolina. This was announced in this 
place. If we had a better reporting structure where we could 
say this is what we have gained that we had been losing--I 
think one of the things that is not emphasized enough in all of 
this discussion is we were losing. We were bleeding. We are 
stabilized and we are improving. To an equity investor that is 
huge. That is not the way most of the world things but that is 
an absolutely wonderful, massive, fantastic change. Talking 
about that, publicizing it, creating a website, having a place 
where everything gets listed. Where when someone starts to talk 
about an improvement in manufacturing in the United States you 
say, yeah, you know, go to ``itisactuallyhappening.gov'' and 
start to show things. And then start to have that also create 
mentors so that when people have an opportunity and they are 
trying to figure out how to navigate it they can maybe find the 
examples of where it has been done.
    I do think South Carolina has done this incredibly well, 
and it does come down to the attitude and the organization. It 
is, I think, going to be much more difficult at a federal level 
because the states do also play such a big role. So things are 
not apples to apples in every different place and it is not 
going to be that simple. But I hesitate to say create an office 
or come up with a person or any of those things. I just think 
that lots of little efforts in a lot of different places can 
all start to add up.
    Chairman RICE. In my opinion, there is nothing more 
important than this. This is our way out of the malaise. This 
is our way out of our unemployment problems. This is our way 
out of our entitlement problems. This is our way out of a lot 
of crime problems. This is our way out of many of the biggest 
issues that face us right now. And I wish I knew how to create 
that attitude of competitiveness that you have, Mr. Secretary, 
at the national level. And any suggestions you all can give, I 
sure want to hear.
    Mr. HITT. Well, again, I earnestly believe that greater 
predictability is what drives manufacturing. What this man is 
saying is if I can control this, this, these things around me, 
I can make a profit. And if I can make a profit, I can sell 
more, whether it is candles or machined parts for a variety of 
industries. Everyone who makes something wants to make more. 
They want to have more people working and they want to have 
more production. There is a strong competitive spirit in this 
country. We are seeing it going on right now at the innovation 
levels. I think with what we are seeing with high-tech business 
creation down the lower level. I see young people that say they 
do not want to wear a coat and tie and go to work like the rest 
of us. They want to do something different, and you are seeing 
this whole code world grow up now with the applications and the 
like. I believe there is a lot of activity. Government has not 
figured out how to enable it.
    I was recently given some money by the legislature to try 
to go and see how we could help foster this. I put out a 
program. I got 37 applications within six weeks from programs 
that want to work in the area of innovation. Innovation is 
something that is classically American. It is what we do that 
gives us the competitive edge and the productivity edge, but 
right now we are all sort of just watching it. We are not 
necessarily feeding it. And I do not know the exact way to feed 
it, Congressman. What I know is we right now have so many 
unpredictable pieces that what I hear from people is they do 
not want to take the risk. Again, the group I met with this 
morning for breakfast before I flew here making their first 
effort, it is a very scary thing to come from another part of 
the world and set up huge capital investment into hundreds of 
millions of dollars, and they are looking for predictability. 
We have done quite a few in the last few years and they are 
starting to trust us, but I think it goes back to we need to 
communicate more and people see that trust. I hear from 
innovation people if you just tell the story about what we are 
doing it would be much better. So we are not telling the story, 
and we are not giving predictable outcomes. And that is what 
Porter is saying with sustainable budgets. All of that is 
predictable. Give people the ability to predict their business 
atmosphere so they can be successful.
    Chairman RICE. Okay. Let me ask you one more question and I 
am going to turn it back over. I am enjoying this.
    If there was one thing that worries you, one thing that 
really needs to be fixed, okay, one thing that is costing you 
bringing jobs in, what is it?
    Ms. MILLS. I would have to say the public education system, 
which I think is at the root of a lot of the problems that 
people are having with finding employees. And I do not think it 
is always as complicated as creating new programs. I think that 
we need to get back to focusing on basic blocking and tackling 
and making certain that every child has the opportunity to 
thrive and have all the skills necessary to work in one of 
these new, more complicated, more quantitative manufacturing 
jobs. It does not sound fast or easy, but I think it is one of 
the most important things.
    Mr. HITT. I have to agree. Workforce development. When you 
are trying to locate a company, the first thing they want is a 
site. Once you get past the site, you are now in the 
competition for that. The next question is people, and are 
there qualified people that we can hire? So you have to throw 
everything at it. And you have to have customized training. You 
have to have apprenticeships. We have done all of these things 
to give people confidence in it. And let us remember, a 
generation ago when I was a young person, way back in the `50s 
and the `60s, our parents told us to get an education. Do not 
work in the mill. Well, it is a new day. Now, we are trying to 
get people to go back in the mill because, as Mr. Harberts 
said, it is a different mill. And we right now are working sort 
of against ourselves. I think we need to have innovation in 
education like manufacturing high schools or medical high 
schools or different sort of categories to create some 
excitement.
    In South Carolina, we had a problem at my old employer 
trying to find people who could maintain all of our equipment. 
Very high-tech equipment in the plant. And we were spending 
enormous amounts of money training people to be equipment 
services people. We took a page out of the Germans. We even 
stole a word they made up called mechatronics and created a 
mechatronics program and it just took off. Why? Mechatronics 
sounded cool. Well, that is part of it. It is a marketing. We 
all want to be what we feel. We want to enjoy what we do. Our 
work is so much a part of what we do every day. So we need to 
attract people to this again, and that means we need to talk 
positively about it and what the success is to the children, 
but also to the parents who sometimes say, no, I do not want 
you doing that.
    Ms. MILLS. And also sometimes to the school districts. I 
have heard companies that have gone to school districts and 
tried to create programs like this and been told, ``No. Every 
child from this school is going to go on to college.'' Now, a 
lot of those students then went on to expensive, not very good 
colleges and have college debt that they cannot repay and are 
much worse off on every level than they would have been if they 
had just been permitted to get really good skills and training 
in this area that this company wanted to train them in. But the 
attitude was that that was not acceptable.
    Chairman RICE. Thank you. I yield. I yield to the ranking 
member.
    Ms. CHU. I asked my questions and so, yeah.
    Chairman RICE. All right. I have truly enjoyed this. I 
really have. Thank you very, very much. I have learned a lot. 
And I appreciate it.
    Once again, I would like to thank you, thank the witnesses 
for appearing today. You have all provided important insight 
into how policy decisions in Washington impact small 
manufacturers operating in the real economy. I ask unanimous 
consent that the members and the public have five legislative 
days to insert statements and extraneous materials into the 
hearing record.
    Hearing no objection, so ordered.
    The Committee is now adjourned.
    [Whereupon, at 3:12 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                  U.S. House Small Business Committee


        Subcommittee on Economic Growth, Tax and Capital Access


               ``Made in the U.S.A.: Small Businesses and


               a New Domestic Manufacturing Renaissance''


                   Secretary of Commerce Bobby Hitt,


                 South Carolina Department of Commerce


    Good afternoon, Chairman Rice, Ranking Member Chu and 
members of the Subcommittee. Thank you for the opportunity to 
provide testimony on today's subject: the re-shoring of 
manufacturing in the United States and its broader impacts 
within the business community.

    Many industry observers have been talking about a 
manufacturing resurgence or `renaissance' happening in the 
United States for the past few years. Research from the Boston 
Consulting Group confirms the trend, as you have heard this 
afternoon.

    On the national level, between January 2011 and December 
2013, the U.S. added 434,000 manufacturing jobs, a gain of 3.7 
percent. This rebound follows a decade-long decline in 
manufacturing employment at the national level, where nearly 
five and half million manufacturing jobs were lost, a decline 
of 32 percent.

    Speaking on behalf of South Carolina's lead economic 
development agency, our state is at the forefront of the 
manufacturing revival today. South Carolina, while a small 
state in physical size, has had a traditionally strong 
manufacturing presence. This sector continues to gain momentum.

    South Carolina's manufacturing GDP was $28.7 billion in 
2012. This is approximately 16.3 percent of the state's overall 
economy, a larger share than on the national level, where 
manufacturing accounts for 12 percent of the U.S. economy.

    Between the end of the recession (July 2009) and December 
of 2013, South Carolina added 15,600 manufacturing jobs, an 
increase of 7.4 percent--more than double the rate of growth on 
the national scale over the same time frame.

    According to a report released by the U.S. Department of 
Commerce's Bureau of Economic Analysis, South Carolina is the 
fastest-growing manufacturing economy in the Southeast.

    The report also ranked South Carolina's economy as the 12th 
fastest growing in the nation, and tied with North Carolina as 
the fastest growing state on the East Coast.

    We are known as a heavy weight in the aerospace and 
automotive sectors, with the highest per capita employment by 
foreign-owned companies. For these reasons, the national trade 
press has given us the moniker ``Beast of the Southeast,'' 
which we wear with great pride.

    Twenty years ago, it was a very different conversation. 
Manufacturing was picking up and moving out of the United 
States and South Carolina. Hardest hit in the state was the 
textile industry, which shed some 60,000 textile mill jobs and 
12,000 apparel jobs over a 10-year period (from 1998-2008) in 
South Carolina alone.

    At the same time, however, the automotive sector was taking 
root in our state, anchored by German automaker BMW, where I 
spent 18 years of my career and where I developed a personal 
passion for manufacturing. Today, there are more than 45,000 
South Carolinians employed by the automotive industry in the 
state.

    More recently, we have successfully recruited the aerospace 
industry to South Carolina, including Boeing's 787 assembly 
operation, and our state has three of the top four global tire 
makers.

    There are several forces driving this re-shoring and on-
shoring of manufacturing to the U.S. today.

    Logistics is a driving force, as companies are seeking 
savings in transportation costs. Companies are moving back to 
the U.S. to get products to market faster and respond rapidly 
to customer orders in a just-in-time manufacturing environment.

    Workforce considerations and the desire to have influence 
over the quality of the finished product are of importance, as 
are lower energy costs and competitive costs for land.

    Recent announcements reinforce that on-shoring is occurring 
in South Carolina. In 2013 alone, nearly $981 million in 
capital investment and 1,200 new jobs were announced by 
manufacturers bringing their operations to South Carolina from 
overseas. The companies range in size and scope.

    Some recent examples of on-shoring in South Carolina 
include:

    Silcotech, a maker of silicone-based injection molding for 
the medical industry based in Canada, selected York County for 
its U.S. plant. The company is investing $3.5 million and 
creating around 50 new jobs.

    Last year, three Walmart suppliers announced new facilities 
in South Carolina as part of Walmart's U.S. manufacturing 
initiative. Collectively, these three companies represent 800 
new jobs and more than $14 million n investment.

    Importantly, these announcements are occurring in our 
state's rural areas. In the past three years, more than 30 
percent of the projects we've announced in South Carolina and 
nearly a quarter of the jobs created have gone into the state's 
rural counties.

    The Walmart suppliers locating in our state include Kent 
International, a bicycle company; Element Electronics, a maker 
of televisions; and Louis Hornick and Company, which produces 
window coverings and home textiles.

    Yes, textiles are returning to the U.S. Another prominent 
example for South Carolina is The Keer Group, a Chinese textile 
company, which decided to build its first plant outside of 
China in Lancaster County, South Carolina, where they will 
produce industrial yarn. The company's $218 million investment 
is expected to create 501 jobs.

    Of course, when speaking about manufacturing, by and large, 
these are larger operations employing hundreds, if not 
thousands, of workers, who assemble products ranging from cars, 
to planes to tires.

    The reason is that manufacturing facilities are becoming 
much more capital intensive. The average amount of capital 
invested by companies per manufacturing job created in South 
Carolina has more than doubled in just four years' time. In 
2013, this figure was $424,000 of capital per job created 
versus $176,000 in 2009. This points to the fact that, overall, 
most manufacturing requires a large amount of capital and is 
difficult to grow to a meaningful scale for traditional small 
businesses.

    Where the small business community typically reaps benefits 
from manufacturing in our state is either by providing a value-
added service in direct support of the manufacturing operation 
(such as machining or repair) or by providing other services 
like janitorial, staffing or subcontracting on construction 
projects.

    For South Carolina, the jobs multiplier for automotive 
manufacturing, for instance, is approximately four, meaning 
that for every automotive manufacturing job created in the 
state, three additional jobs in a variety of service and 
support functions are created. Most of these jobs are in small 
businesses. Other industries like aerospace, food products and 
machinery manufacturing have similarly high jobs multipliers.

    There are also examples in our state of manufacturing 
contract work that has been on-shored to manufacturing 
operations of fewer than 100 employees. This includes Sargent 
Metal, which contracts with Otis Elevator and ADEX Machining, 
which provides value-added work for the aerospace sector. In 
these cases, being Made in the U.S.A. offers a highly skilled 
workforce, lean manufacturing processes, as well as cutting-
edge technological advances and world-class infrastructure.

    The Department of Commerce's mission is to recruit business 
to the state and to help existing businesses grow. Commerce has 
positioned itself as being the state's business agency--no 
matter the size of that business. An area we have strived to 
augment over the past three years is our small business area, 
which offers resources and programs specifically aimed at the 
small business community.

    These programs include exporting assistance, which has been 
the beneficiary of federal funds through the STEP program 
(State Trade and Export Promotion). From 2011 to 2013, our 
staff has helped 59 small-and-medium-sized enterprises enter 24 
export markets, resulting in $3.7 million in sales.

    Additionally, we have hosted a series of events pairing 
small business owners with prospective lenders--something akin 
to ``speed dating'' for acquiring a business loan.

    The Department of Commerce works to connect the dots 
between small business and large industry. To accomplish this, 
we host supplier outreach events and have a ``Buy South 
Carolina'' program to bring together industry's needs with 
businesses in the state that can fulfill them.

    One recent success is Continental Tire, which is investing 
a total of $500 million and creating 1,600 jobs in Sumter, 
South Carolina. The tire maker announced in January that it has 
awarded some $100 million in contracts to South Carolina 
companies to date, an example of the ripple effect that occurs 
when a company of its scale locates in our state.

    With this positive momentum, how can we encourage this 
growth curve to continue?

    Success hinges on many factors, but I see three things as 
being the most crucial to our recruitment efforts: sites, 
infrastructure and workforce.

    We continue to place emphasis on building our statewide 
inventory of suitable sites and buildings to show prospects. As 
a state, we are offering financial assistance to counties for 
site development and encouraging collaboration among regions 
for multi-county parks.

    Certainly infrastructure is critical. This ranges from our 
transportation infrastructure, including our seaport assets, 
roadways and rail network; to utility infrastructure like water 
and sewer. The federal Community Development Block Grant 
program as well as our state's Rural Infrastructure Authority 
are helping to address the infrastructure needs in South 
Carolina's lesser developed areas. Bringing this crucial 
infrastructure online helps ``set the table'' for economic 
development to happen.

    And finally, workforce development is vitally important. 
South Carolina has invested in training programs that provide 
company-specific training and apprenticeship opportunities. 
These programs, readySC and Apprenticeship Carolina, are rated 
among the best in the nation.

    Overall, the industry points to a need to encourage more 
young people to explore manufacturing as a career in order to 
get them into the pipeline. Today, the biggest deficiencies are 
in trained technical positions with a two-year technical 
degree, such as industrial maintenance and precision 
manufacturing, as well as four-year STEM fields such as 
engineering and information technology.

    In closing, South Carolina is benefiting in a large way 
from manufacturing investment, and I believe there will 
continue to be opportunities for our small business community 
to profit from the manufacturing renaissance. The adage ``a 
rising tide floats all boats'' certainly fits.

    Again, thank you to the leadership and members of the 
Subcommittee for the invitation to address you today. 
Manufacturing is a personal passion of mine, and I appreciate 
the opportunity to share the South Carolina story.

    # # #
                  Written Testimony of Kevin Harberts


                             President/CEO


                                   of


                     Kryton Engineered Metals, Inc.


                               Before the


                   House Committee on Small Business


        Subcommittee on Economic Growth, Tax, and Capital Access


``Made in the U.S.A.: Small Businesses and a New Domestic Manufacturing 
                             Renaissance''


                             March 13, 2014


    Thank you for the opportunity to testify before you today. 
My name is Kevin Harberts, President and CEO of Kryton 
Engineered Metals in Cedar Falls, Iowa. I think this hearing is 
a great opportunity to showcase manufacturing in America and 
shed light on an issue which crosses political lines and 
international borders.

    Since our founding in 1981, Kryton Metals has become an 
industry leader in manufacturing spun and fabricated metal 
products. We service a range of industries including foundries, 
ventilation, lighting, aerospace and automotive. Many of our 
products contribute to enhancing the nation's energy efficiency 
and are installed in LEED-Certified buildings around the 
country.

    This time a year ago we had 63 employees; today we have 
grown to 71 and hope to hire another 8-12 this year. We 
attribute this growth directly to reshoring--a product line 
which left the U.S. a decade ago and came back to America's 
heartland. But to understand our growth, you have to first 
understand how we got here.

    Like many other companies in our industry, the Great 
Recession hit us especially hard. In 2008 and 2009, we had to 
lay off 35 employees due to the downturn. For any family-owned 
business, this is one of the most difficult things to do, but 
it was necessary for us to survive.

    Then, about two years ago, we became aware of a life 
changing opportunity. A company sourcing from Europe was 
exploring whether they could return the manufacturing to the 
U.S. and find a supplier with competitive pricing to serve the 
North American market. We made some prototypes to demonstrate 
we had the capabilities but the real test was the price. In our 
industry, a price differential of a fraction of one penny can 
mean the difference between getting the job and missing out.

    At the time, we were not in a position to hire more 
employees to meet the demand so, like all manufacturers; we 
learned to do more with less. The company invested heavily in a 
laser machine specifically so we would service the customer and 
increase automation to meet their target price and we were able 
to convince this company to reshore the work. We made these 
investments despite the significant risks and the environment 
of the Great Recession.

    Our customer slowly began transferring the work to our shop 
in Iowa and we are now looking at a $5-6 million product line. 
For a $10 million a year company, this changed the fate of our 
business and the lives of our employees.

    Foreign manufacturers choose to reshore and source from 
U.S. suppliers for several reasons such as price, quality, 
availability of raw materials such as steel, and location. In 
our case, the customer wanted to source from a U.S. supplier so 
that it can ship products both to Illinois and Monterey, 
Mexico. We not only convinced the customer that our prices are 
competitive but demonstrated the obvious--Iowa is much closer 
to Illinois and Mexico than the customer's supplier in Europe.

    Prior to reshoring its business, the customer had to wait 
two months from the time it placed its order with Europe to 
receive the products in North America. After reshoring, its 
delivery time went from two months to two weeks.

    These time savings are a significant advantage we provide 
to our customer over its competitors. We can develop new 
products for it in a matter of weeks rather than wait for a 
ship to cross the Atlantic. This is especially important 
because, while I work in a ``just-in-time'' industry, we all 
live in a ``just-in time'' world where the consumer wants the 
latest technology and wants it today.

    The decision of our customer to supply from Kryton Metals 
will carry us into 2020. We are currently running 50 SKUs for 
them and plan to grow to 300-400 by the end of 2015. We are 
going to save our customer money, grow our business, and--most 
importantly--create jobs in Iowa and throughout our entire U.S. 
supply chain.

    These kinds of opportunities just don't happen often in our 
industry and are directly related to reshoring. In convincing 
the customer to bring the work back to the U.S. from overseas, 
we not only created jobs at Kryton Metals, but created jobs for 
our suppliers and vendors as well. For example, my raw material 
purchases have increased fourfold due to this reshored business 
which created the need for suppliers to also hire new employees 
to meet the demand. This is an important point about the 
manufacturing industry--not only do we directly employee 12 
million Americans, but our industry indirectly supports a 
combined 18 million jobs.

    Although we are currently experiencing tremendous growth, 
it hasn't come easily and it's not guaranteed to continue. We 
are now in danger of becoming a victim of our own success. We 
expanded our operations at such a rapid rate that I cannot find 
enough qualified employees to fill my job openings. While we 
succeeded in convincing a company to bring overseas work to the 
U.S., I can't expand our business without qualified employees.

    Earlier I mentioned that Kryton Metals hopes to hire 8-12 
more Iowans this year. This may not seem like much but, for a 
70-person company, it amounts to a significant expansion. 
Furthermore, the positions manufacturers create are solid 
careers, not mere minimum wage jobs. For some of my openings, 
the starting salary is $70,000-80,000 a year plus benefits.

    Additionally, the uncertainty in Washington has the 
potential to hinder manufacturers' future growth and reshoring 
successes. While politicians argue among themselves, employers 
like me are stuck in a holding pattern. We don't know whether 
Congress will extend the R&D Tax Credit, we're unsure what new 
rules OSHA and the EPA will impose on us, and we can't find 
qualified workers in large part because Congress has not 
updated our job training laws in over a decade.

    The federal government needs to help foster an environment 
in which businesses from around the world want to reshore work 
to the United States. Domestic manufacturers can only lower 
their prices so far we're not changing our location. Which 
leaves federal government policy and instability.

    Kryton Metal's future looks pretty sunny at the moment but 
manufacturing's future is incredibly cloudy. Although the 
economy is improving, it isn't doing so at the rate we need to 
grow American manufacturing. To improve manufacturing's 
forecast, we must look to overseas opportunities and convince 
foreign customers that the U.S. is THE place for manufacturing. 
Manufacturers are dong our part to encourage reshoring--now its 
Washington's turn.

    Thank you for allowing me to testify today and to highlight 
the great story that is manufacturing in America.
[GRAPHIC] [TIFF OMITTED] T7279.019

    Thank you for inviting me Chairman Rice, Congresswoman Chu, 
and distinguished members:

    Pacific Trade International (PTI) is one of the leading 
home fragrance suppliers in the U.S., with 130 employees and 
nearly $60M in sales. Marketed under the Chesapeake Bay Candle, 
BlissLiving Home and Alassis brands, PTI fragranced candles, 
diffusers and accessories are sold in major U.S. retailers such 
as Target, Kohl's, TJ Maxx, Marshall's and Home Goods.

    Since 1994, PTI's products were produced and sourced from 
factories in China and Vietnam. PTI held an ownership stake in 
these factories and could depend on a reliable, high-quality 
supply chain. Beginning in 2008, we saw a rapid increase in the 
costs of labor, freight and materials in Asia, and also an 
increased demand for faster replenishment cycles from our U.S. 
customers due to the financial crisis and the need for lean 
inventory. The pressures on cost and inventory led PTI to 
become one the earliest proponents of ``in-sourcing''. The 
following reasons pushed us to make the U.S. our final 
destination for manufacturing operations, rather than 
considering traditionally less expensive countries such as 
Mexico and Poland:

          1) Speed to Market

                  Our U.S. factory can deliver replenishment 
                orders with one week, vs. 4 to 5 weeks from 
                Asia. This makes our factory attractive for 
                retailers particularly on seasonally sensitive 
                products.

          2) Cost of Shipping and Logistics

                  Avoiding transnational shipping and relying 
                only on domestic shipping cut unpredictable 
                cost variations due to oil price fluctuations 
                and the constant demand-supply changes that 
                impact ocean line prices.

          3) Production costs

                  Automated equipment used in the U.S. makes 
                per unit production costs close to that of 
                labor costs in Asia and delivers consistent, 
                higher quality.

    For these reasons, we decided to settle in Maryland where 
the brand was initially launched and where we are 
headquartered.

    We found a number of unoccupied warehouses along the I-695 
corridor near Baltimore. The number was staggering. 1 out of 
every 4 blue-collar workers was unemployed. We decided to build 
our factory there, taking advantage of the abundant warehouse 
space. We also wanted to give back to the community by 
employing local staff.

    Built without government incentives or support from local 
agencies, PTI's new factory in Glen Burnie, MD, was budgeted to 
cost approximately $4M in capital investments, working capital 
for start-up, and inventory.

    We were unable to identify any source of available 
government financing that did not require a lengthy application 
and approval process. The Maryland Economic Develop Council 
offered the possibility of low-interest rate financing, but the 
review process proved to be too lengthy and the funding limits 
too restrictive to meet our needs. In the absence of viable 
funding options, the company proceeded with the project from 
its cash reserves, hurting its cash flow and liquidity.

    The time to completion from initial lease execution was 
planned to be approximately 6-8 months with completion planned 
for Q4 2010.

    In reality, the project took 5 months longer and ran $2M 
over budget due to complications arising from the need for us 
to make the new facility compliant with all relevant codes for 
permitting. The state had not opened a factory for almost two 
decades. As a result, codes for manufacturing facilities were 
outdated. The lack of guidance from local and state agencies 
made the process more time-consuming and costly as we had to 
hire an architect, three engineering firms, and a general 
contractor to help sort through the design issues related to 
code compliance and permitting. Although we started to occupy 
the warehouse and pay for key staff as planned, the planned 
production start date was delayed from late 2010 to mid-2011. 
This delay resulted in losses from operating expenses carried 
before production could begin.

    In the timeline below, the actual permit delay was two 
months due to redesign for compliance issues. Prior to that, 
there was a delay of at least one month due to confusion of 
code-related design issues. There was also another one-month 
delay related to construction of HAZMAT storage, ADA bathrooms, 
and sprinkler/alarm upgrades. Due to the local government's 
lack of understanding of what is applicable to a manufacturing 
facility, we were asked to study codes applicable to hospitals, 
schools, and restaurants, resulted in further delays. The 
following is a timeline of the process:

           December 2009: First strategic discussion 
        with key customers regarding prospects of building a 
        factory in the U.S.

           January-March 2010:

                     Business planning and site selection.

                     Chairman David Wang and COO Dale Williams 
                reviewed potential sites in Ontario, CA, which 
                were convenient to the Port of Los Angeles and 
                major distribution partners. I reviewed sites 
                in central and coastal Maryland. A comparison 
                of initial costs, recurring lease expenses, 
                labor markets and ongoing overhead costs were 
                conducted.

           March 2010:

                     Initial orders for production equipment 
                placed with German vendors.

                     Consulted fluid systems engineers to 
                design and specify wax storage and mixing 
                systems.

           April 2010:

                     Lease was signed for Glen Burnie facility, 
                a 120,000 ft \2\ warehouse in Bay Meadow 
                Industrial Park. The site chosen was a former 
                warehouse for Reliable Liquors, which moved to 
                a larger facility nearby. The facility was 
                built in 1980 and permitted for use as 
                warehouse/office space only. The facility 
                encompasses 20,000 ft \2\ of finished office 
                space and 100,000 ft \2\ of warehouse space.

                     Met with local Chamber of Commerce 
                officials and County Economic Development 
                officials to identify possible incentives and 
                financial aid resources.

                     Met with Anne Arundel County Department of 
                Inspections, Licenses and Permits (AAC DILP) to 
                discuss permitting process and applicable 
                codes. AAC DILP provided little guidance; they 
                simply referred PTI to consult the 2003 
                International Building Code, the ADA code 
                applicable for change of use, and NFPA 101 Life 
                Safety Code F1 for manufacturers. We were 
                advised the county would require ``upgrades to 
                the fire safety systems including smoke 
                curtains for the office area, sprinkler 
                coverage and alarms'' to reflect change of 
                building use from manufacturing/warehouse to 
                mixed use with manufacturing.

        -- May 2010:

                     PTI commissioned a commercial architect to 
                begin the design and layout processes for 
                tenant improvements on the proposed Glen Burnie 
                site.

                     Hired electrical, structural and 
                mechanical engineers from the same firm to work 
                with the architect on required upgrades.

           June 2010: Hired a General Contractor to 
        coordinate architectural and engineering work and 
        assist with code and permit issues.

           July 2010: Completed the first design for 
        tenant improvements.

           August 2010:

                     Filed first permit application on August 
                8.

                     August 19 - first comment letter received, 
                consisting of five pages and 30 action points. 
                Key items included hazmat storage, fire safety 
                plans, and HVAC for air exchange requirements

                     First contractor quotes received at costs 
                50% above PTI initial estimates.

                     PTI initiates a redesign with contractor 
                to reduce costs and address hazmat storage and 
                fire safety issues raised by AAC DILP.

                     August 20 - Retained independent fire 
                safety engineers and began investigation of 
                fire safety and HAZMAT storage solution for 
                redesign.

           September 2010:

                     September 13 - Received feedback on fire 
                code issues from fire engineers, began redesign 
                of HAZMAT storage and HVAC system to address 
                code compliance in the most cost-effective 
                manner.

                     September 28 - New permit application 
                filed with revised plans for hazmat, fire 
                safety, and HVAC.

           October 2010:

                     October 18 - Permit received.

                     October 25 - Construction begins.

           May 2011:

                     May 17 - Certificate of occupancy received 
                from AAC inspector.

                     May 24 - First production begins.

           June 2011: Grand Opening

    Since opening, the Chesapeake Bay Candle factory has gone 
from 17 employees to 80, and tripled production capacity. It is 
now one of the leading new job creators in Anne Arundel County, 
MD.

    The company faces challenges in finding qualified 
employees. Most applicants lack sufficient skills or training. 
Basic reading, writing and arithmetic skills are often 
deficient and many are unable to follow instructions or 
function in a modern, collaborative production environment. To 
combat a 50% turnover rate in these jobs, additional incentives 
are being considered.

    The local area also suffers from a lack of qualified mid-
level supervisory talent, reflecting the absence of relevant 
vocational training and a vanishing ecosystem of other 
manufacturing companies.

    Our recommendations to the Committee are as follows:

          1. Create regional advisory offices within U.S. 
        Department of Commerce or as an extension of the Small 
        Business Administration to help small and mid-sized 
        businesses navigate state, local and other regulatory 
        requirements. Many investors may not know how to 
        determine which states best fulfill their manufacturing 
        and business needs, and a federal level review of each 
        state will help speed up the selection process.

          2. Through the same mechanism, guide companies to 
        relevant incentives for tax breaks, financing, training 
        and other programs whether sponsored by local, state or 
        federal entities.

          3. Provide a resource guide specific to new 
        manufacturing ventures to help identify local 
        suppliers, private developers, and other assets 
        critical to start-ups.

          4. At the state level, provide a one-stop concierge 
        service to help new investors understand compliance 
        issues and the procedures related to building a 
        manufacturing facility so they can make more informed 
        decisions.

          5. Encourage local high schools and vocational 
        colleges to provide gateway programs to internships and 
        apprenticeships for local manufacturers to draw upon as 
        sources for qualified talent.

          6. Help educate Americans that we need to be a 
        national that produces goods, rather than a nation that 
        just purchases them. People should take pride in making 
        things and the government should strive to eliminate 
        the stigma associated with manufacturing jobs.
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                
                                 
