Starbucks gives jolt to Ohio River town
Wednesday, June 13, 2012
Starbucks gives jolt to Ohio River town
By: Stephanie Strom, New York Times
EAST LIVERPOOL, Ohio - Not that long ago, this little Ohio River
town could call itself the pottery capital of the nation. Some four
dozen pottery factories here "set America's table," as the locals
liked to boast, churning out everything from fine china to chamber
pots and employing a large majority of the work force.
But no longer. Global competition and economic collapse
shattered the industry like a poorly executed tablecloth trick and
turned East Liverpool into a desperate corner of the country.
Median income is roughly one-third lower than the state average,
and more than 10 percent of working-age residents are
unemployed.
Just two pottery makers remain, and one, the American Mug and
Stein Company, was on the verge of closing last fall. Then Ulrich
Honighausen called. Mr. Honighausen, the owner of a tableware
company, Hausenware, in Sonoma County, Calif., which supplies
retailers like Crate & Barrel, Pottery Barn and Fred Meyer with
ceramics and glassware from producers all over the world, had a
plan to revitalize American Mug and create jobs in an industry that
had all but died. What if American Mug were to make mugs for
Starbucks?
"I almost didn't take his call because I figured it was a crank
call or something," said Clyde M. McClellan, owner of American
Mug.
But on Tuesday, the company's mugs will go on sale in Starbucks
stores across the country as part of a line of new merchandise made
in America and branded Indivisible.
American Mug's production has kept four people employed and
created eight more jobs here, and money from the sale of the mugs
and other Indivisible merchandise will go to support Starbucks's
Create Jobs for USA Fund, which helps small businesses. "You have
to start somewhere," Mr. Honighausen said.
The unlikely partnership between Starbucks, with its 200,000
employees, and tiny American Mug grows out of the debate over
outsourcing by American companies and what responsibility, if any,
they bear for addressing the decline of the country's job
market.
A few companies have taken some small steps to bring lost
manufacturing jobs back to American soil, driven sometimes by
declining labor costs in the United States, other times by
dissatisfaction with the quality of goods made abroad.
General Electric, for example, has created almost 800 jobs by
building plants in Schenectady, N.Y., and Louisville, Ky., to make
sophisticated batteries, some of which were previously made in
China. NCR is making automated teller machines in Georgia that had
also been made overseas.
Last month, Starbucks announced it would build a factory in
Augusta, Ga., that would employ 140 people and make the company's
Via instant coffee and the ingredients for its popular Frappuccino
drinks. About half of Starbucks's new employment overall will come
in the United States, the rest internationally.
"We are on the hunt for other domestic opportunities for
products we sell and other things we do," said Howard D. Schultz,
chief executive of Starbucks. "There has to be a sense of urgency
about action, and since we're not likely to find it in Washington
between now and the election, it's time for companies and
businesses to step up and find a balance between profitability and
responsibility."
The effort is not all altruistic. Chinese labor has become more
expensive, and Starbucks and other companies are looking at their
supply chains more holistically. American Mug can deliver to
Starbucks in four days, while Chinese suppliers may take three
months.
A Chinese supplier is also likely to require an order in the
hundreds of thousands, increasing the risk that Starbucks will get
stuck with inventory. And then there is the difference in shipping
costs. "No doubt the cost of doing what we're doing in East
Liverpool at least in the initial stage will be more expensive for
Starbucks, but the investment we're making in this is about the
conscience of our company and recognition that success has to be
shared," Mr. Schultz said.
So far, though, evidence that companies are bringing jobs back
to America is spotty at best. "I'm not sure we're seeing a sea
change," said Gary P. Pisano, a professor at Harvard Business
School. "What we need to see is manufacturing that creates new
capabilities here that we didn't have and can build on, and I don't
think we're seeing that yet."
The business school has thrown its enormous prestige and
resources behind what it calls "reinventing America," an effort in
part to persuade American businesses, many of which are led by its
graduates, to take a hard look at the impact their outsourcing has
had on the country's competitiveness.
"One of our concerns is that as we lose certain capabilities in
manufacturing, we are also losing highly innovative processes,"
Professor Pisano said. "If a company does its manufacturing in
China, its suppliers are going to locate in China and then a lot of
the innovation that grows out of those businesses and creates new
jobs is going to happen there and not here."
To be sure, pottery manufacturing is not the kind of high-octane
business Mr. Pisano envisions when he thinks about how to restore
American competitiveness. American Mug and Stein uses much the same
manufacturing techniques it did 90 years ago, relying on molds and
casting, finishing and glazing that are done by hand.
The factory, where the temperature stays at 90 degrees to ensure
the products dry properly, feels Dickensian. Shards of broken
pottery and clay dust are piled on the floors, and products are
pulled by employees along a monorail to various stations in the
four-story factory.
"I was surprised I got into this town without a passport," Mr.
Honighausen said. "It looked like a third-world country."
Since he started his company in 1987, most of the manufacturing
is done overseas, in Europe and more recently in China, where
pottery making is a highly automated process.
A tiny factory in Gifu, Japan, for instance, can turn out 7,000
mugs a day with just eight employees, two of whom are charged with
attaching the handles that are supplied by another manufacturer.
That's 10 times the number American Mug can produce using the same
number of employees.
He found American Mug last fall after having heard an interview
with Mr. Schultz, in which the Starbucks chief, disgusted with the
political standoff in Washington over raising the debt ceiling,
called on business leaders to stop making donations to politicians
and start doing something themselves to address the country's
woes.
"It was a good kick in the pants for me," Mr. Honighausen said.
"I thought, 'Let's just do it.' "
He first considered building a factory in Northern California,
close to his base of operations, but a business contact who makes
decals used to apply decoration to pottery suggested that he
instead take a look at what might be available in East
Liverpool.
Now, not only is American Mug on its second order for Starbucks,
but Mr. McClellan has gone into business with Mr. Honighausen and
one of his longtime associates, Kazuharu Kato, who manufactures
pottery in Japan and China. They bought a pottery factory and have
plans to hire 10 to 15 people once they get it up and running
sometime later this year. Called the Red Barn, it will use
state-of-the-art machinery like that used in Mr. Kato's factories
in Japan and China, enabling it to turn out mugs and eventually
other products by the thousands each day.
Christina Bishop is one of the new employees hired by American
Mug. Ms. Bishop said the local economy was "tough" and added,
"There really aren't any jobs available here that pay enough for
you to afford to have a family." Her husband, Eric, was out of work
for six months before also landing a job at American Mug.
Many of East Liverpool's 11,000 residents work at the
casinos across the Ohio River in West Virginia or at the Pittsburgh
airport, about a 40-minute drive away. The East Liverpool school
district is the town's largest employer. The Homer Laughlin China
Company, the other pottery still operating there, employs 200 to
300 workers.
"Even seeing a few jobs created is very exciting," said
Ryan Estell, the city manager of East Liverpool. "That someone
noticed there is something more here than just machines, that there
are also skills and know-how here, is important for us."