It all sounds depressingly familiar: Master Lock Co., in the throes of a restructuring and under shareholder pressure to control costs, has been shipping jobs halfway around the world.
"We're strategically going at it, when it makes sense, where it makes sense," said Master Lock senior vice president Bob Rice.
In a new twist, however, it's China where Master Lock's costs are rising disruptively. The company has responded by pulling production back to Milwaukee, where the manufacturer of iconic padlocks was founded in 1921.
Master Lock and other companies have begun to reassess China:
• Labor unrest rippling across China is pushing wages higher in a nation with a supposedly inexhaustible supply of cheap workers. Thirty provinces have raised their minimum wages in the past year, some more than 20%.
• Further inflating prices of Chinese imports, Beijing engineered a 20% weakening of the dollar against the yuan in the last five years, bending to pressure from Washington, which bristles at China's tight control over its exchange rate.
• Shipping rates from Chinese ports spiked fourfold in the 12 months through August to their highest levels in maritime history, according to Universal Cargo Management Inc. in Los Angeles.
Master Lock was bringing work back to Milwaukee during the recession, Rice said.
The company's flagship industrial campus, with nearly seven football fields of unionized factory floor space, is at capacity for the first time in 15 years.
"We're not done yet," said Rice, echoing economists and trade officials who expect Chinese wages to rise further as the dollar continues to fall.
Whether it's called near-sourcing, on-shoring or re-shoring, America's outsourcing infatuation with China has cooled a few degrees.
General Electric Co., which exports water heaters from China to the U.S., is preparing to add water-heater production later this year at its Louisville, Ky., plant, the first new product added there in 50 years. Wham-O Inc. is shifting a share of its Frisbee and Hula Hoop production back to the U.S.
"The main reason is cost of production," said Wham-O chief executive Kyle Aguilar. "We are making progress toward our goal of producing half of all Frisbee discs in the United States."
No one suggests that America is on the brink of a manufacturing renaissance, or that the reverse flow of jobs is anything but a trickle. But the jobs that flow against the tide reflect a slight but hopeful tilt in the trade equilibrium.
"One thing is certain," said Pieter P. Bottelier, senior professor of China studies at Johns Hopkins University in Washington, D.C. "Production costs in China are on the rise for various reasons, including unit labor costs, energy and transportation, taxes, land and China's real exchange rate. This will help the U.S. to regain competitiveness in several industries."
As Rice selectively shifts production back home, mainly in the form of combination locks, subassemblies and keys, Master Lock has added some three dozen jobs in Milwaukee in recent years, bringing total factory head count to 379.
That compares to 1,300 at its peak in the early '90s before the company was blindsided by a proliferation of low-cost Asian copycats. That sent Master Lock into China in 1993 and then into Mexico. "We went there in survival mode," Rice said of the early outsourcing. "We're businessmen. We do what's right for this company."
Milwaukee's industrial history is littered with empty factories, many in the vicinity of Master Lock. Ensconced in one of the nation's poorest inner cities, Master Lock's formula for job creation is a combination of high volumes and as much automation as it can afford, Rice said.
Often no more than a single technician oversees multiple banks of automated equipment, capable of shaping parts within one-3,000th of an inch. Master Lock's system produces a shiny new combination lock every 2 ½ seconds, each with a unique six-digit combination printed on a sticker on the back.
There's one other element in Master Lock's Milwaukee model: When it shipped out the jobs, it never exported its ability to make things.
"If you divested in capital equipment and put all your eggs in the China basket, it means you could get caught in the China bubble," said Rice, who visits China four times a year. "If you get caught in the China bubble, you have to chase production to the next low-cost player."
Often that means Thailand or Vietnam, which are fine for shoes and textiles. But Rice and others say those nations lack China's first-world infrastructure, supplier networks and its ranks of university-trained managers and engineers.
These days, Milwaukee can make locks from start to finish that are cost competitive with Asian rivals. Turning everything around, Master Lock even exports locks to China and Europe from Milwaukee, Rice said.
In a random check at an Office Depot in Milwaukee, the locally made model 1500 combination padlock with a twirly dial - standard issue for generations of American high schoolers - cost $4.99. "Master Lock is the only North American producer of school padlocks, and we make millions of them per year," plant manager Thomas Schlaefer said.
Milwaukee's flagship also makes the precision parts and casings for the signature product that launched the company, the nearly indestructible padlock built from layers of steel and riveted into a solid block. Federal agents used them during Prohibition to shut down distilleries and speak-easies. Legend has it that it's the only lock Harry Houdini couldn't pick. In the '70s, Master Lock ran Super Bowl advertisements showing a high-powered bullet rip into a laminated lock in slow motion - gashing but not opening the lock.
As Rice walks past a row of blast furnaces that harden each shackle at 1,600 degrees Fahrenheit - making them immune to metal cutters, crowbars or hammers - he boasts that few Asian look-alikes are as durable as the originals.
The company generates total annual sales in excess of $300 million.
Master Lock still keeps plenty of capacity in China, although less of it over time, and much of it for shipment within Asia.
It contracts with three Chinese factories and a network of some 20 Chinese suppliers. In the early part of the decade, more than half of all Master Lock production was in China.
The remaining production is split between Milwaukee and its Mexican site near the Arizona border, where Master Lock carries out non-automated, labor-intensive work, such as fitting together made-in-Milwaukee subassemblies.
Today, the combined North American output outstrips production in China. Chinese wages, meanwhile, now match Mexican levels, Rice said.
Beijing and the West have long assumed that the impoverished Chinese interior would furnish an inexhaustible supply of cheap migrant labor, keeping wages depressed in the industrial urban centers. But it didn't turn out exactly as planned.
Coastal cities such as Shenzhen or Guangzhou today are crammed with migrant laborers, who have begun striking, including at factories for Honda and Toyota. China's labor practices drew international condemnation last year with a string of suicides at the Taiwanese contract manufacturer Foxconn, which makes electronics for Western brands in the southern Pearl River Delta.
"In order to keep people in factories, they now have to pay them higher wages or they go somewhere else," said David J. Hofmann, director of the InterChina Consulting group in Washington. "This is a new phenomenon."
Salaries for managers and engineers soar even faster. China is spawning a massive urban middle class that wants cars, their own apartments and the wages to pay for them.
The interior, meanwhile, remains impoverished and poses a different threat to Beijing's "harmonious society initiatives." Subsistence farmers rage at their gaping economic disparity with the urban classes, testing Beijing's capacity to exert social control.
"Social unrest will continue and, if unchecked, could become a significant risk" within five years, InterChina concluded in its latest analysis.
Even with labor unrest, China remains a powerhouse.
Beijing's policy makers have shifted priorities to new markets and high-end technologies that require skilled workers, university-trained engineers and the wages that pay for them, according to Hofmann and others. If anything, the shift reflects Beijing's growing confidence as an increasingly sophisticated economic power. China bypassed Germany in 2009 to become the world's leading exporter and overtook Japan last year as the world's second-largest economy.
In the U.S., meanwhile, politicians often attract jobs by handing out taxpayer subsidies. GE took a $25 million package of local and federal aid before it agreed to start water-heater production in the U.S. GE also won union concessions in the form of a two-tier contract that cuts hourly wages to $13 for new hires from $22 for current workers.
Master Lock never asked for state aid nor accepted any.
"The union made no concessions," Rice said. "We have to have a compelling reason to be in Milwaukee."
That's mainly because Rice needs to justify each initiative to his bosses at Fortune Brands Inc., Master Lock's owner since 1970.
Fortune Brands is a Fortune 500 holding company that markets everything from Titleist golf balls and Jim Beam whiskey to Moen faucets. The New York Stock Exchange-traded company has an unsentimental view of costs.
Last month, Fortune kicked off a wholesale restructuring, announcing plans to split into three separate companies. It will keep its $2.5 billion liquor business, which also includes Maker's Mark bourbon and Courvoisier cognac, while spinning off the $1.2 billion golf products division and simultaneously creating a $3 billion home-and-security products business.
The latter includes Master Lock as well as Moen faucets, Therma-Tru doors, Simonton vinyl windows and MasterBrand cabinets. Fortune will allot shares of the newly independent home-and-security business to its current shareholders in a new structure that keeps Master Lock under shareholder scrutiny.
To Rice, the spinoff means greater latitude. "We'll be given full autonomy to do what we want to do," Rice said. "In the past, investments went for golf or spirits. Now it'll move right back to home security. It'll help drive the entrepreneurial spirit."