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European manufacturing giant prefers offshoring to United States, not China

GlobeA lot has been said recently about the resurgence of manufacturing in the U.S. — it was mentioned as a top priority in an address by the president, and reports are now showing that offshoring by American companies no longer pays.

If you’re looking for a case study pitting U.S. and Chinese manufacturers against each other, look no further than Swedish industrial juggernaut Atlas Capco, which is the world’s largest maker of air compressors. Atlas Capco also makes mining equipment and components that are found in Samsung phones and Boeing airplanes.

The company builds its products in Europe, Asia and the United States, but Ronnie Letten, Atlas Capco’s chief executive, recently told the Washington Post that Atlas Capco is beginning to favor manufacturing in the U.S.

This may come as a surprise to some, who still believe the antiquated idea that Chinese manufacturing is cheaper and better than American manufacturing.

But not Atlas Capco. The company continues to purchase manufacturing plants in the America. Last year alone, the company bought manufacturers in Utah and Houston to build its parts, and in 2009 it bought a 90-year-old producer of compressors in the United States.

Letten told the Washington Post, “We used to have the opinion that China is the manufacturing [center] of the world. I’m not sure I’ll say that again.”

Letten holds an actual competition between its U.S. and Chinese manufacturers where the loser must hold onto a trophy for the year. In 2013, the “trophy” resides in China. One reason that Letten said the trophy is there is due to rising labor costs in the country. And Letten thinks it will remain there for a while to come.

Atlas Capco is reported to have $5.7 billion in its pockets and will continue to invest that in U.S. manufacturing of its products.

CNBC reported in April that the European Crisis could be a further bolster to U.S. manufacturers. Strategist at Bank of America Merill Lynch in a research report noted, “The net effect is a growth cycle that is like to favor U.S. sectors such as manufacturing. The U.S. manufacturing sector may benefit from the wage constraint, cheap resources and inexpensive working capital that the post-credit crunch world provides.”

European companies such as Atlas Capco are seeing the benefit of manufacturing outside of Europe, and they’re reaping the benefits of manufacturing in the U.S. over China.

photo credit: Ludovico Cera via photopin cc

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