Those who say manufacturing jobs will never return to the West don't know what they are talking about. Either that or they are purposely being disingenuous because it is the only way they can justify outsourcing decisions focused on the realization of short-term objectives.
Manufacturers unwittingly created a monster when they began transferring manufacturing to China about two decades ago. The process, while initially favorable to everyone, today threatens to completely drain production from other parts of the world (and not just the West) in favor of China, creating a lopsided environment that should be anathema to any supply chain management guru and business executive.
It's pure insanity for a manufacturer to locate all production resources in a single part of the globe, and yet that is what the high-tech industry and many other manufacturing sectors of the global economy celebrate in China today. Recent discussions about conditions at facilities in China manufacturing products for Apple Inc. (Nasdaq: AAPL) and other major OEMs are, in my opinion, misplaced. While the focus on alleged labor and human rights violations is pertinent, Apple executives and other supply chain professionals in the high-tech industry should also be looking at the potential production snafus that would occur if disruptions in China were to halt their activities in the region.
This is why I disagree with Steve Jobs, the late Apple CEO and chairman, who reportedly told President Obama manufacturing jobs won't ever return to the United States and western countries. In time we will know how accurate his prediction was, but personally I am convinced manufacturing jobs will migrate back to the West and that the torrential outsourcing of production to China will eventually slow to a trickle. The current system is unsustainable and will unravel as it becomes clear we have created an unusual, highly faulty, unsupportable, and potentially dangerous supply chain management condition.
The massive outsourcing to China by businesses threatens to inflict significant damages upon many regions of the global economy. There are major geo-political implications for the rest of the world in this manufacturing shift, and we are already witnessing some of these in the hollowing out of communities and growing production unemployment worldwide. The solution advanced by many that the US and Europe could instead focus on higher-end design and services job is faulty. Chinese workers desire these jobs, too, and the country is already taking steps to advance opportunities for its citizens in finance, services, and high-tech design.
That China sits astride the global manufacturing sector is indisputable. It has for the last two decades been winning outsourcing contracts from foreign manufacturers for its factories and setting off controversies in developed economies in Europe and North America over vanishing jobs and emasculated municipalities.
But this is not a political diatribe. The West operates a capitalist system, and probably the best reasons for the position I take here is that the current system violates so many time-tested norms of the capitalist economy. The outsourcing of production to China will slowly decrease over the next years, and eventually some high-end manufacturing activities will begin to migrate back westward. This may be a controversial position today, but I am fully convinced we will one day see a revival in the manufacturing economies in Europe, North America, and other parts of the globe.
In my next blog I will expand on this and advance five reasons I believe manufacturing jobs will eventually start growing again in the West.
@Bolaji: I fervently hope you are right in your analysis, and I expect you will be wiriting about this in upcoming blogs, but I do have a concern about one obstacle to re-establishing manufacturing prowess, at least in the US. That is labor unions. While many unions exist for very good reasons and serve their members well, others have jacked up salaries and have tied the hands of many organizations that try to progess beyond their existing business model. There are still no-show jobs in government; rules that can bring work to a stop for the smallest of reasons; and other abuses of the system. I'm not saying that unions do not have a place and that they have not accomplished a lot of good. And abuses exist everywhere. To bring some jobs back, there will have to be concessions made and I hope unions are able to see the big picture when the time comes.
We cannot compete on cost so it will need offshore manufacturing to cost the same as onshore before manufacturing jobs come back. This could be done by labor costs rising offshore or by protectionist importing policies.
Barbara, You may have a point about labor unions but that is beside the point. Jobs didn't move out of the west because of labor demands or even higher wages alone. They won't move back either because labor unions cave to manufacturers' demands. They will move back because the current system is untenable.
Based on what you and I both know about manufacturing and the problems of single-sourcing, does it make sense for an OEM to centralize production in one region or even with a single contractor? Go to your nearest store and check out the manufacturing label on the first 10 items you see and most of these would have been made in China. The United States is not alone. What happens when the worldwide economy locates manufacturing in one country -- not just a sngle region?
To address your concerns about labor unions, those same demands you highlighted are being made in China right now. Workers demand higher wages when they see their employers making reasonably high profits. Is it unfair for Apple's manufacturers to ask for higher wages when they see the company making hundreds of dollars in profit on a product that costs them less than $200 to make? Do we believe the Chinese will always be satisfied with lower wages and what happens when the wage differential disappears and all a manufacturer is left with are supply chain support co-location and high logistics costs?
Flyingscot, I disagree we can't compete on cost even now. We can. It's all about the product. There are certain products it would be stupid for a Western manufacturer to base their competitive position on cost but there are others where wages may make little to insiginificant difference. Supply chain experts at components distributors and even contract manufacturers have been asking OEMs for a while to begin looking at their total cost of ownership rather than just simply wages.
You may succeed for a while in lowering your costs and gaining market share simply by trimming wages but what happens when disaster strikes and your shipment can't leave a port and that's the only source for your product. It may not happen but risk management is all about anticipating and putting in place redundancies.
Bolaji, I still am not convinced that manufacturing will come back to US or west. Your explanation about companies realizing that too much investment in China can be against the diversification's golden rule is spot on but will the beneficiary of this strategic shift be the West, we'l have to wait and see. I think other Asian countries or African countries, where labour cost is very low and infrastructure is drastically improving, may be serious candidates if diversification decision is taken by companies who outsourced.
WaqasAltaf, Manufacturing won't flip wholesale back to the West and China won't lose its dominance in a hurry either but the pendulum needs to swing back to equilibrium. What many people don't know is that China didn't just suck manufacturing jobs from the West it also did from other nations, including Eastern Europe and stunted growth in the emerging nations you mentioned.
The beneficiaries of a job shift from China will be many and I agree there are going to be many contenders. What will determine the beneficiaries? These will include the stage of development of the support services and other geo-political factors. How many of the lower-cost countries you mentioned will benefit will depend not just on the labor rates but also on the level of infrastructure development and if executives are fine with the decision.
"Do we believe the Chinese will always be satisfied with lower wages and what happens when the wage differential disappears and all a manufacturer is left with are supply chain support co-location and high logistics costs?"
@ Bolaji
I agree Bolaji. To add on, many companies are already concerned about rising labour costs and other factors due to inflation in China and also India. It wont be too long, when companies find other venues to shift their production units to. However, its very unfortunate of the capitalism culture, that it finds venues where labour rights are not strong and where corporations can get away with wage rates lower than those prescribed by governments.
This discussion on manufacting is sure to be a hot topic. Certainly cost reduction has been a (if not the) driving force for investment in China in recent history. But i don think other factors will become more dominant than they have been. From a consumer perspective (which is only one aspect of the issue) I would purchase more domestic products if they were available, and do search out sources that carry domestic products. Some issues that come to mind (in support of purchasing domenstic goods, even at a price premium):
- Higher confidence in quality and purity of materials used and traceabllitiy to raw material sources
- More confidence in regulatory compliance and enforcement, particulary for products that come in close contact or are used in personal consumption
Certainly there are many more aspects to consider from the business and logistics perspective, which I am sure will be covered in depth in additional posts and articles.
Yes. Bolaji. Its not going to be only about labour cost if the contenders need to compete to gain from shift of manufacturing units from China. The factors you mentioned will play a strong part.
However, the bad part of capitalism is that the culture of equality and benefit for all does not exist. If a single country benefits at the cost of many nations suffering from it, it will remain that way unless few handful owners of those corporations feel otherwise. The role of government diplomats will be important to make a paradigm shift.
Bolaji: I agree concentrating manufacturing in one region, whether it is the US or China, is risky. I also agree there is more to manufacturing than just salaries. In fact, that is one of the smaller costs of a typical electronics product--high-volume, low mix products are highly automated. So, manufacturing is actually a different discussion than jobs. Manufacturing such as the type I mentioned before--high-volume, low mix--can easily be brought back West because there is very little labor content. So the net result: yes, you can bring manufacturing back, but I don't think that many jobs will follow.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
To save this item to your list of favorite EBN content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Tweet This