Starbucks turns to Ohio, not China

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. 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," 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 U.S., 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 automatic teller machines in Georgia that had also been made overseas.

Last month, Starbucks announced it would build a new 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 U.S., 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," 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," 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."