When NovaSom Inc. was looking to produce its sleep apnea diagnostic kits, the Glen Burnie-based company didn't look to factories in Asia or Mexico. Instead, it found a manufacturer right off the Beltway in Woodlawn.
NovaSom chose Zentech Manufacturing Inc. for two key reasons: Executives here could oversee quality control, and the kits could be shipped to domestic customers in just days, not weeks or months.
After years of American companies shipping jobs and contracts overseas, some are choosing local manufacturers or even "re-shoring" — bringing those jobs and work back to the United States. With the economy crumbling several years ago, many companies were forced to re-evaluate their global supply chains.
General Electric Co., for instance, recently announced that it plans to invest more than $400 million to bring back refrigeration and appliance manufacturing from South Korea to plants in four U.S. states.
Making products closer to home has become more appealing for some U.S. companies because of rising shipping costs and quality-control problems. Compounding matters, companies are increasingly wary of intellectual property theft in Asia, while wages are climbing in China — which is expected to translate into rising costs for manufacturing goods there.
Moreover, local production means a product can get into consumers' hands more quickly. And a weak dollar means more global consumers can afford products made in the United States.
"We're held accountable for the quality," said Roger Richardson, NovaSom's vice president of operations. "For quality control and timeliness, we felt like it was important to have a local partner to manufacture."
One-fourth of more than 850 companies surveyed by MFG.com, a global online marketplace for manufacturers looking to source custom parts, returned work to North America from overseas in the last quarter of 2010. That was more than double the rate of companies that said they had taken such a step in the first three months of last year.
Last year, U.S. tool and machining manufacturers hosted a "Re-Shoring Fair" in California to connect companies seeking to outsource with American contract manufacturers.
The debate in manufacturing circles is whether re-shoring could ever make a major dent in the amount of work flowing overseas.
Michael Galiazzo, executive director at the Regional Manufacturing Institute, a trade association, said Maryland manufacturers have not yet seen a big bump from re-shoring, though he sees the influence of fluctuations in the value of the U.S. dollar sometimes prompt manufacturers to "bounce back and forth" between the U.S. and overseas.
Maryland's manufacturing sector has been hit hard in recent decades and is still bleeding jobs. In December, 110,000 people worked in the state's manufacturing sector — down by more than 7,000 from December 2009.
But the Federal Reserve Bank of Richmond, Va., which tracks the economy of the Mid-Atlantic, found in a survey last month that more manufacturers expect steady growth in shipments, new orders, order backlogs and capacity use over the next six months.
Many observers credit IBM with the first mass-scale outsourcing effort when building personal computers in the 1980s. Since then, companies such as Apple and Hewlett-Packard have come to rely on contract manufacturers in Asia to fulfill demand for their products.
Michael Palma, a research manager with IDC who studies the electronics contract manufacturing market, estimated that last year the outsourced production was worth $297 billion. By 2015, outsourced electronics manufacturing will be a $423 billion-a-year business. North and South America account for only about 15 percent of that industry, he noted.
Zentech, for one, is starting to win business that in the past might have gone to overseas factories, said Matt Turpin, the company's co-owner and president. One of the company's key strengths is its ability to engineer and manufacture electronics components for a wide range of customers, including defense contractors, medical diagnostics makers and telecommunications firms, he said.
"In any given week, we're probably building 20 to 30 different products," Turpin said. "We're seeing expansion and recovery in our existing customer base, and we're winning business that was previously performed overseas or in other states."
Zentech employs 140 people, from highly skilled engineers to electronics technicians. The company recently scored a nearly $2 million military contract for armored tank electrical components and is on the verge of securing a large-scale commercial lighting contract, Turpin said.
Like many Maryland manufacturers, Zentech endured tough times during the recession, laying off about 15 people. But now, Turpin said, the company, formed in 1999, is positioned for steady growth and might add 20 to 40 employees over the next 18 months.
Domestic contract manufacturing has remained strong in some areas despite the economic downturn and broader off-shoring trend, says John Tuck, editor of Manufacturing Market Insider.
"It's a business that's still quite vibrant," he said. "There are customers such as defense companies that want manufacturing done for security reasons in the United States. The same goes for some medical products. There is a demand for contract manufacturing in the U.S. in certain markets."
It's in those niche areas that Zentech operates. It counts 10 Maryland companies as customers, including a Becton, Dickinson & Co. medical diagnostics subsidiary, a Northrop Grumman Corp. division and NovaSom, whose diagnostic equipment is used by patients in their homes to measure the severity of sleep apnea. Last year, Zentech built more than 2,800 of the devices for NovaSom.
Zentech posted $21 million in revenue in 2010, a decline from 2008 when it had $26 million, the highest in its history. But revenue this year is forecast at $27 million to $30 million, according to the company.
Turpin concedes that some major American companies that need to produce tens of millions of products might see economies of scale in producing them in Asian factories.
But, he says, there are also many American companies that specialize in highly technical electronics, or biomedical diagnostic equipment, for which quality control and engineering collaboration are more significant factors.
"A lot of these jobs that are going overseas," Turpin says, "can be done here."