Why one local firm is returning its jobs from China

If he weren't so likable, Doug Yuen would be the kind of guy who could easily drive folks nuts with his precision about time and cost management.

At home, he can't get away with it, much to his chagrin.

But at Princeton Tectonics Inc., Yuen, a manufacturing engineer, is Mr. Spreadsheet, with production aspects of each personal-lighting product that the Bordentown company makes charted to the hundredth of a penny and the thousandth of a second.

So when Yuen asserts that it's less costly to produce the company's products in New Jersey instead of China, he can back it up, simply by unfurling his spreadsheets.

"When you say a part is made in China, you automatically assume it's cheaper," he said. "I . . . like to say that we could do it cheaper here."

In this election year, with an unemployment rate stuck at just above 8 percent and 12.5 million out of work, issues of off-shoring jobs and bringing them back resonate, accompanied by a lot of flag-waving. Looking at one company's situation illuminates the economic forces and decision-making in concrete terms, minus the rhetoric.

Princeton Tec's decision to return its jobs to the United States was helped, in no small measure, by the tough economic times produced, in part, by companies' decisions to go abroad in the first place.

Engineer Bill Stephens started Princeton Tec in 1975 because he and his wife, scuba divers, sought better equipment, especially head lamps. The business expanded to serve miners, industrial users, bicyclists, outdoor types, and the military.

For example, the company gained some notoriety recently when Navy Seal member Matt Bissonnette, writing under the pseudonym Mark Owen, disclosed in his best seller, No Easy Day, that he used a Princeton Tec light in the raid that killed Osama Bin Laden last year.

By 2005, Princeton Tec was at a crossroads. The company had reached capacity at its two Bordentown plants, so a decision was made to use contract manufacturers in China.

"At the time, it seemed to be cheaper and more cost-effective to bring products to market via China rather than increasing floor space and hiring more employees here," said human-resource manager Laura Papp.

In 2005, the unemployment rate had dipped to 4.9 percent. Competition for even minimum-wage workers, the kind employed as assemblers at Princeton Tec, was stiff.

On the finance side, using Chinese contract manufacturers meant "there was a little less capital investment" needed here for buildings and equipment, said spokesman George Chevalier. The Chinese manufacturers, however, required payment upfront.

Ultimately, China handled 40 percent of Princeton Tec's manufacturing.

Many other companies made similar decisions.

Economist Robert Scott of the Economic Policy Institute, a Washington think tank, has a broader concept of lost jobs than the usual depiction of "off-shoring" with U.S. factories idled and production shifted abroad. To him, they are part and parcel of the nation's overall trade deficit.

"We've displaced 5.6 million jobs since we began to have trade deficits, starting in the mid-'70s," said Scott.

Looking at the trade deficit on a micro level, Princeton Tec imported more Chinese goods - the components it needs for its products - than it exported in finished lamps for sale in Beijing.

The deficit in goods mirrored the deficit in workers: Princeton Tec components manufactured abroad meant more workers were employed in China and fewer in the United States.

Multiply that by thousands of U.S. companies, Scott said, and the result is a growing trade deficit - $300 billion to China alone in 2011, up $23.3 billion from 2010 - and an accompanying loss of 300,000 jobs in one year.

For Princeton Tec, off-shore manufacturing problems began almost immediately. Quality was one of them.

"When it came back from overseas, it wasn't up to our standards," said vice president David Cozzone, estimating that customer complaints led to a 5 percent sales drop.

Also, the company had to order more than what was needed at any given time - to account for its Jersey warehouse stock, the amount being made in China, and the shipments en route to the United States.

That's a lot of inventory to maintain, but it could get even more complicated.

Suppose a customer, such as L.L. Bean, suddenly decides it wants green headbands instead of black. Even assuming that the Chinese manufacturer can nimbly change the dye in its factory, expensive expedited shipping by air becomes necessary to meet retail scheduling.

"You have to use the ocean if you want the savings," Yuen said. "But you always wind up needing expedited shipping."

At the Bordentown factory, a last-minute color change for a plastic part is a 10-minute operation, and the company can make as few or as many of the item as it wants. Chinese factories required a minimum order.

"The flexibility here is huge," Yuen said.

Other factors influenced the decision, as well.

"It's unfortunate" that so many people are out of work, Papp, the HR manager, said. "But it made it easier for us" to find workers, even for minimum-wage jobs.

A distressed manufacturer sold Princeton Tec three injection-molding machines at less than half-price.

And, because of the economy, Princeton Tec was able to get a good deal on a building in Berlin, N.J., with more than enough room for expansion and a staff that has doubled from 80 to 160 in recent years, including 15 this year.

The company has upgraded, too, buying a new stitching machine that doubled the output of headbands.

Now, all but 10 percent of Princeton Tec's manufacturing occurs in South Jersey. The rest will return soon, company officials said.

In his office tucked into a corner of the factory floor, Yuen pulled out detailed spreadsheets for just one product component: the one million headbands Princeton Tec used in 2011.

He had already talked about the less-quantifiable aspects of quality and convenience, so to get to the bottom line, all Yuen had to do was point:

Price per headband in the U.S.: $0.6527.

Price per headband in China: $0.71.