What Pencils Teach About Globalization

There’s sometimes an overwhelming sense of doom when it comes to globalization. It is true that globalization is here to stay. The scale of the massive and complicated network of suppliers and manufacturers that crisscross the world searching for ever lower labor costs is seems unlikely to disappear any time soon. But it is possible to manufacture domestically and profitably. And a good example of that is the lowly pencil.


To make pencils, lumber is cut into stock then blocks then pencil slats at a sawmill and factories. Grooves are cut into the slats for the “lead,” which is a mixture of graphite and clay. A second slat goes on top—like a sandwich. The sandwich slats are cut into individual pencils. The pencils are coated with lacquer and then a tipping machine puts on the eraser holder and eraser. The raw materials for this process come from everywhere:  graphite from Brazil or Mexico, wood from  Sweden or South Africa, rubber from Thailand or Malaysia and the aluminum crimp from China or Mozambique.


With estimates that the world produces 20 billion pencils a year, factories are everywhere. In fact, half of the world’s pencils are made in China. As pencils.com explains it: “many poorer countries such as China, Indonesia and India have dramatically increased pencils production and export because of a general cost advantage in materials, labor and reduced regulatory environments.”


Despite all the hallmarks of being a product that could only be competitive if made in a low-wage nation, the largest pencil maker in the world is Germany’s Faber-Castell. They’ve been in business since 1761, and their workers in Germany are members of the IG Metall union. How does a German company with a unionized workforce maintain such a large market share?  Innovation. Faber-Castell invented the hexagonal pencil to stop it from rolling off the desk. The company also was the first to use water-based paints on the pencils. In fact, teachers in Germany request that parents only purchase Faber-Castell pencils because of safety concerns. Faber-Castell does have factories around the globe, but it makes a point of keeping their “know-how” close to home in Germany. “I don’t like to keep the know-how for my best pencils in China, for example,” explained then Faber-Castell CEO Anton Wolfgang Graf von Faber-Castell.


U.S. pencil manufacturers also exist. For example, General Pencil has made pencils in New Jersey for over 150 years and these days they maintain their market share by focusing on quality and fine art pencils.


So to summarize the lessons of the pencil: global product, but high-wage nations can compete based on quality, innovation and specialization. And if we can keep countries from unfairly dumping their subsidized products in our country, then the industry might keep making it in the U.S.A.