Smaller businesses struggle to make it in the U.S.A. by Jennifer Alsever @FortuneMagazine 7:08 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons In recent years U.S. manufacturing has shown hints of a comeback. In October, for example, Boston Consulting Group reported that companies with annual sales of $1 billion expect to make 47% of their products in the U.S. in five years, up from 44% last year. For companies whose revenues don’t approach $1 billion, however, the reality has been trickier. Consider Martin Keen. Stiff competition forced him to move production of his shoe company, Keen Footwear, to China a decade ago. So in 2012, when he started his latest enterprise, Focal Upright, a maker of standup workstations, he made it a top priority to manufacture them in the U.S. His intentions were noble—but the reality was brutal. The North Kingstown, R.I., entrepreneur struggled to find American contract factories that could produce parts for his desks. When he did find facilities, they were slow to respond to inquiries, took months to return bids, and were largely unwilling to make investments to manufacture the parts he needed. “I thought people would be chomping at the bit to build components for us,” says Keen. “But there was a lackadaisical attitude. It was very discouraging.” The tale is a familiar one for small companies that want to manufacture in the U.S. Everyone agrees it’s a laudable, even patriotic, ideal. But modest-size businesses that rely on outsourced factories describe frustrating searches, unreturned phone calls, and prohibitive costs. Take Boulder inventor Scott Rodwin. He found a manufacturer in Colorado Springs to make his product, the Loop, a plastic doughnut that keeps earbud cords from getting tangled. The factory made mistakes, caused shipment delays, and was slow to respond. “They often don’t even answer their phone,” he says. (The factory’s owner says he’s trying to hire new people and add more equipment and space to meet demand. “Things are a little chaotic for us as companies reshore,” he says. “I turn away work almost every day.”) Manufacturing has succumbed to a destructive cycle: Reduced demand has led to the closing of 63,000 U.S. factories since 2000. But now that demand is returning, it seems the contract factories can’t handle it—which only encourages more foreign production. “The No. 1 reaction people have when looking into the U.S. is surprise and dissatisfaction about how few options there are,” says Josh Green, CEO of Panjiva, an online directory for manufacturing suppliers. Closing Time The number of U.S. factories has dropped more than 15% since 2001Graphic Source: Bureau of Labor Statistics Entrepreneurs aren’t a priority for contract manufacturers, which don’t want to invest time and effort in projects for shaky startups, says Harry Moser, president of the Reshoring Initiative, a nonprofit that encourages domestic manufacturing. Moreover, Chinese facilities often offer advantages over U.S. ones. American factories tend to focus on narrow areas, such as electrical assemblies, machine parts, or fabricated metal. China, by contrast, built up plants that can make components, assemble finished products, and ship them, all in one place. “We don’t have many companies here that you can say, ‘Here’s a design for a bicycle or a refrigerator. Go make it,’” Moser says. “Skilled labor is also a problem. Chinese people are still hungry enough to do these jobs.” Ironically, China’s outsize success—which has caused wages to rise—now offers opportunity for U.S. contract factories. If you include transportation, the cost to manufacture in China has more than doubled since 2000, and wages are expected to leap by 10% or more, according to a recent report by Bank of America. By making products at home, U.S. companies contend, they can carry smaller inventory and deal with fewer language barriers, travel hassles, and worries that their products will be counterfeited. Moreover, the phrase “made in America” has a golden marketing glow: 90% of consumers say they have a favorable opinion of domestically manufactured products, according to a survey by Mellman Group and North Star Opinion Research. All that makes America look a lot more attractive. Behemoths like Ford, Apple, Whirlpool, and Toyota are already bringing manufacturing jobs back. Wal-Mart, once vilified for killing U.S. manufacturing jobs by stocking ultra-cheap goods, is attempting to support the reshoring trend by pledging to buy an additional $250 billion worth of American-made products over 10 years. In the past 18 months Wal-Mart stocked shelves with hundreds of U.S. products, from Lincoln Logs made in Maine to candles melted in Arkansas. Still, the retailer’s demand for both domestic production and low prices can become a catch-22. Rodwin says a buyer from Wal-Mart wanted to carry his earbud loop in stores as part of its made in the U.S.A. initiative, but the talks fizzled because he wanted a price that could be achieved only if the Loop were manufactured in China. “There would have been no profit and no money for our overhead,” says Rodwin. He eventually moved production to China. “The No. 1 reaction people have when looking into the U.S. is surprise and dissatisfaction about how few options there are.”—Josh Green, CEO of Panjiva Entrepreneurs committed to domestic production must get creative. Alexandra Ferguson, for example, got her start in her living room six years ago, making pillows with sassy phrases that she sold on Etsy. When she couldn’t find a U.S. factory that could die-cut, letter, and sew her pillows at a high quality in one place, she got a bank loan to open her own tiny factory in Brooklyn. Ferguson now has an agile and expert six-person operation that can produce pillows quickly, in small batches, which lets her avoid unsold inventory. “I can make five of something or 10 of something,” she says. “I can take a custom order and get it out the door in two hours.” Three tips FOR MANUFACTURING IT IN THE U.S. Make it easy to make: To ensure your product can be constructed at the right price, consider the manufacturing process when designing it. That may mean eliminating unused features or using a design that eliminates time-consuming labor. The more local the better: Using nearby factories makes it easier to monitor work, reducing the risk of costly mistakes. It also makes it easier to regulate inventory. Use a matchmaker: A cottage industry of resources to help small enterprises has emerged in recent years. State and local nonprofits, including UtahCan.net, MadeinNYC.org, and MadeinChicago.org, offer help on prototyping, design, and production, as does for-profit MakersRow.com. The Manufacturing Extension Partnership offers a matching service, while MFG.com and Fabricating.com let you get bids from suppliers. With overhead high, Ferguson must sell her pillows at a premium price of $100 apiece. But so far the cost doesn’t appear to deter the niche of customers who covet a U.S. artisanal style. With $1 million in sales, Ferguson also hopes to boost revenue this year by sewing products for other companies too. Keen has taken the long view. Because Focal Upright couldn’t find factories here, he initially started making parts overseas in Asia and Germany. The company has gradually started moving production to the U.S., finding suppliers in four states with a goal of buying 60% of its parts in America by the end of the year. Finally, in September, Focal Upright opened its own factory to assemble the workstations. “So much manufacturing has left the country, it has almost forced me to be a manufacturer,” says Keen. “But I am determined to do the right thing.” This story appears in the November 17, 2014 issue of Fortune.