Page last updated at 11:07 GMT, Friday, 12 September 2008 12:07 UK

High oil price fuels 'Made in America'

By Greg Wood
North America business correspondent, BBC News

The high price of oil is beginning to put the brakes on globalisation, according to one international furniture-maker.

Factory in Davville, US
Danville's warehouses are being revamped for 21st Century industry.

The soaring cost of transport means that it is no longer cost-effective to make certain goods, like furniture, in low-wage economies and then ship them halfway across the world.

As a result, many international companies are now looking to site their factories as close as possible to the markets they serve.

And that is helping to revive manufacturing industry in some depressed parts of Western economies.

In the southern Virginia town of Danville, Ikea is making coffee tables and bookshelves for its US stores.

In the past, the Swedish company shipped these items from its factories in Eastern Europe. But since 2000, the cost of moving goods by sea container has trebled because of the high price of oil.

Ikea's manufacturing arm Swedwood opened this plant- its first in the United States - earlier this year to cut down on transportation costs.

"This kind of lightweight furniture is cheap to make, so transportation is a huge part of the overall cost", says Jorgen Lindquist, the vice president of Swedwood in North America.

"So by taking out sea transportation, it saves a lot."

New Jobs

The old tobacco warehouses of Danville are being converted to house 21st Century businesses. A whole swathe of foreign companies - Polish, Indian, Mexican - have set-up plants here to be near their US customers. Danville's city manager, Lyle Lacy, says 6,000 new jobs have been created over the past four years.

"It used to be affordable to put parts together, ship them overseas and bring them back assembled", says Mr Lacy.

"That doesn't work any more. You need to manufacture here and deliver here, because the markets are here."

After losing my job and struggling for two years ... it's great to have a feeling of comfort at night when you sleep
James Evans, Danville resident

The wealth of Danville was built on textiles and tobacco. But when those industries moved away, 30,000 US jobs were exported overseas.

Now, with foreign investors moving in, jobs are being imported again.

Danville resident James Evans lost his old job when the textiles giant Dan River closed its factory here. Now he works for Ikea.

"After losing my job and struggling for two years, it's great to have a feeling of comfort at night when you sleep," he says.

The finished coffee tables and book shelves are loaded on to trucks for the relatively short journey by road to Ikea's 35 US stores.

Neighbourhood effect

Danville is benefiting from what is known as the "neighbourhood effect."

It is more cost-effective now for international companies to make things as close as possible to their consumers.

For many goods, high transportation costs have all but wiped out the benefits of manufacturing in low wage economies.

Some experts argue that more expensive oil will bring a halt to the globalisation of business. But Professor Jeffrey Sachs from the Earth Institute at Columbia University in New York says that is unlikely.

"I don't see a surge of employment coming back to the manufacturing sector in the United States meaning that it becomes the boom employment sector.

"That's what some people may be looking for or expecting when they hear that globalisation will be impeded by rising energy prices. I would say don't hold your breath for that."

In New York, a free water taxi now ferries customers to Ikea's new megastore in Brooklyn. So, the Swedish company is not only changing the way it transports its goods, it is changing the way it transports its customers too.

Inside the store, the furniture from Danville is on display. Ikea plans to treble the output from its factory here, supplying a wider range of goods domestically.

For US consumers, "Made in America" may once again become a familiar label.




SEE ALSO
Ikea's free ferry to Brooklyn
01 Sep 08 |  Business

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