Maine's New Balance Shoe Stakes Survival on Innovation

Jun 15, 2015

NORRIDGEWOCK, Maine - Led by a wave of Democratic opposition, the U.S. House of Representatives voted down a bill Friday that would have given President Obama so-called "fast track" authority to finalize a free trade deal with 12 Pacific Rim nations.

The political brinksmanship over the Trans-Pacific Partnership - or TPP - is being closely watched by managers and workers at New Balance, the only major athletic shoemaker still producing some sneakers in the U.S.

New Balance's lengthy effort lobbying the Obama Administration for protections under the TPP appears to have succeeded. But the company has also been tweaking its business strategy so it can keep making sneakers in Maine - even if tariffs on imported footwear from Asia go away for good.

New Balance has three factories in Maine. One in Norway, another in Skowhegan and a third in Norridgewock, where Chuck Campbell is the plant manager. It employs roughly a quarter of the company's nearly 1,400 workers in New England. "As of right now, we are quite comparable in cost, when you look at beginning to end, to our counterparts in Asia," Campbell says.

Virtually all athletic footwear sold in the U.S. is imported into the country from Asia. New Balance is an outlier. Twenty-five percent of the company's U.S. shipments come from its factories in Maine and Massachusetts.

New Balance's lean manufacturing approach accounts for some of its ability to continue making sneakers here. But Campbell says it's the tariffs imposed on imported footwear - a mark up as high as 68 percent - dating back to the 1930's that have allowed the company to compete on a level playing field.

"If the tariffs are released, a reduction in price for the overseas manufacturers would be more challenging," he says.

So New Balance has carried out a lengthy and aggressive lobbying campaign to prevent that from happening, as proposed under the TPP. Two U.S. trade representatives traveled to New Balance's Norridgewock plant to hear from workers.

Maine's U.S. senators have visited repeatedly and personally lobbied the administration. Former Congressman Mike Michaud hand delivered a pair of New Balance sneakers to President Obama. And the company has sent workers from the factory floor to Washington to lobby members of Congress directly.

"We continually talk about American workers. It's easy to forget who the American workers are," Campbell says. "But when you see them, or when politicians see them standing in front of them, I think it does have that much more of an impact."

The efforts appear to be paying off. On Friday, 2nd District Congressman Bruce Poliquin, a Republican, broke with his party and voted against fast tracking the TPP. If the deal does eventually go through, a continuation of the tariffs, which is opposed by major industry players like Nike, appears unlikely.

But Campbell and others at New Balance say the Obama administration may be willing to phase them out. "So a phase-out would allow us to create a plan. You know, it's a lot easier to adjust when you have time to make those adjustments."

The adjustments, it turns out, are already underway. On the ground floor of the Norridgewock factory, Joshua Goodridge is putting the finishing touches on black pairs of New Balance 998 sneakers. "I know that China and the Asian community really like the shoe," Goodridge says.

New Balance used to make more of its traditional running sneakers here. But over the past few years, the company has switched gears and started making more of what it calls "lifestyle" sneakers. Goodridge explains why. "Oh, yeah. They pay good quality money for it. They pay money for the quality and we give it to them."

It's hard to find them in China for less than $400. This year, Chuck Campbell says New Balance hopes to export around a million pairs of these American-made sneakers worldwide. "As a result of that, we have a slight increase in labor costs here in the U.S. But the margin on those shoes, because of the additional price people are willing to pay for that craftsmanship piece, is certainly making us that much more competitive."

"The management is being very realistic, recognizing that, at some point in time, the tariffs are going to disappear," says Lori Keltzer, provost and dean of faculty at Colby College, where she's also an economics professor specializing in international trade policy.

Kletzer says only through innovations and tweaks in business strategy will New Balance have a chance of holding onto its U.S. factories and workers in a tariff-free market. "That's going to be a make it or break it time for the company," she says.