SPECIAL COVERAGE: UNDERSTANDING OUTSOURCING

MARCH 9, 2004

Outsourcing Splits
Manufacturers

Small Producers Seek
To Fight Migration of Jobs
As Larger Firms Join Trend

By TIMOTHY AEPPEL
Staff Reporter of THE WALL STREET JOURNAL

Tension is mounting within the National Association of Manufacturers, with many smaller members urging the big lobbying group to do more to fight the migration of jobs overseas even as many of its larger members embrace the trend.

Such friction reflects a broader conflict in the U.S. economy as a whole. Smaller companies often feel squeezed by rising foreign competition and by the bigger manufacturers that the smaller companies supply, pushing them to cut costs. Many bigger companies outsource work to China or other low-cost nations to achieve those savings.

"This is probably the most difficult case of diverging interests that NAM has ever had to face," says Gerry Letendre, a member of NAM's board and president of Diamond Casting & Machine Co. a small Hollis, N.H., maker of aluminum parts for the electronics industry.

Some smaller members have grown disenchanted and even are quitting the lobbying group.

NAM, with 14,000 members, is a major voice for U.S. industrial interests and has been politically vocal on issues ranging from opposition to ergonomic workplace rules to lowering health-care costs. The group spends about $4.4 million a year on lobbying and has 32 registered lobbyists. Small and medium businesses pay about 30% of NAM's $21 million in annual dues, the bulk of the group's $22 million budget. Those companies account for two-thirds of its members.

NAM acknowledges a drop in support from smaller manufacturers. But it contends the drop, which it won't quantify, reflects the nation's general slump in manufacturing, not dissatisfaction with the group's policies. "While we've lost some small manufacturers -- a couple of hundred or more -- it has been because of the severe recession that manufacturing has had," says Jerry Jasinowski, NAM's president.

Mr. Jasinowski also said that while China is certainly one of the most significant issues facing his members, he is encouraged by the way large and small companies have forged common positions. "There's just a general reaction on the part of many that China is the problem, and some of the big guys just don't see it in the same order of magnitude at all," he said.

Jim Zawacki, owner of a small factory in Grand Rapids, Mich., says he joined NAM two years ago mainly to fight the movement of jobs overseas. That trend, he contends, threatens to undermine his business and eliminate relatively high-paying factory jobs. "But I discovered NAM really doesn't represent the majority of manufacturers as such, because unfortunately their revenues mainly come from the multinationals that have caused more job losses [in the U.S.] than anything else," he says.

Mr. Zawacki recently decided to drop his NAM membership. "They keep sending me renewal notices, and I just keep throwing them in the trash," he says.

P.C. "Hoop" Roach, chief executive of Erie Plastics in Corry, Pa., says a friend who also operates another small manufacturing company recently talked him out of quitting. "We probably won't renew," says Mr. Roach. "But I'll see if they get this sorted out in the next year." He says NAM will "lose their small manufacturing base" if they don't get a handle on the offshore outsourcing issue.

While its larger members have clout, NAM relies on its smaller ones to testify on Capitol Hill to bring manufacturing issues home to politicians. "The larger manufacturers need the breadth that the small manufacturers bring, with local contacts in lots of places," says Fletcher Steele, chairman of the small and medium-size manufacturing group on NAM's board.

Early last year, Mr. Jasinowski called a small meeting of manufacturers in Washington to discuss how NAM should deal with the rising tide of concern about China. While the roughly 20 people who attended readily agreed on the outlines of a policy, there was a clear split between large and small companies, according to a person who attended.

Similarly, at NAM's board meeting in September, the group wrangled over the wording of a resolution on the problems facing the manufacturing sector. By that point, NAM was already pressing the administration to try to get China to stop manipulating the value of its currency, which many economists say makes it more difficult for U.S. producers to compete with their Chinese counterparts.

But many larger companies opposed singling China out for criticism in the NAM document. As a compromise, NAM's final document calls on "China and other Asian nations" to "reduce trade barriers, comply with international trade rules and allow markets to determine exchange rates."

Many smaller manufacturers say NAM has become more responsive to their concerns in recent years as they have become a greater force in the economy, as well as greater contributors to NAM. Smaller companies are allotted 52 seats on NAM's 225-member board and small-company bosses have served as NAM's chairman twice in recent years. NAM has opened its ranks to the tiniest companies, creating memberships with as little as $150 a year in dues. Some 2,000 of NAM's companies have 30 employees or fewer. Last year, NAM expanded the category of small and medium-size manufacturers to those with annual sales of $750 million, up from $250 million.