A little noticed online news story posted on Evertiq.com on April 1 this year, announced that the European Commission had passed a bill that forbids member states from importing electronics goods from Asia. This meant that all electronics sold within the EU now also had to be mostly assembled (51 percent) in the EU. This was, of course, an April Fool's joke, but it did generate either hope or concern in those who read it. Hope for companies not in Asia; concern for those who are.
That same day, The Wall Street Journal ran an article entitled "We've Become a Nation of Takers, Not Makers." This piece pointed out that more Americans now work for the government than in manufacturing, farming, fishing, forestry, mining, and utilities combined. If, the author contended, we are to retool our economy to "win the future" as President Obama says, the only way to do that is to build an economy that makes things.
These two articles got us wondering what it would take for electronics manufacturing to again grow in the US. Common wisdom currently holds that high volume manufacturing of consumer goods will remain in China and that only medium- and low-volume manufacturing of more complex products will migrate back within the regions into which they are sold.
While this might hold true for the foreseeable future, what would happen if an environmental or geopolitical catastrophe -- think of the recent tsunami in Japan and unrest in North Africa and the Middle East -- were to hit China? Would this give a boost to the US manufacturing base, and would the US be in a position to respond? Let’s consider the necessary ingredients for a return to manufacturing in the US.
OEMs:
Got lots of them… check.
Skilled labor force:
Got that too... check.
Good infrastructure:
Somewhat dated, but better than many other places in the world… check.
Manufacturing equipment:
Plenty of that lying around in the world… check.
Proximity to US consumer end markets:
Can't get much closer… check.
Stable sources of water and power:
Oh yeah… check.
Low-cost labor force:
Not really, but if we can leverage Mexico and less expensive regions within the US we could pull it off, and besides, it isn't that cheap in China anymore either.
Electronics component supply base:
Houston, we have a problem...
China controls over 80 percent of the global supply chain, so manufacturers in the US would be mostly dependent on them for parts. However, federal and state governments, if they wished to support development of electronics manufacturing, could provide tax incentives for companies that could build such components and begin to reverse the trend.
Analysis undertaken by Charlie Barnhart & Associates has been pointing to a regional manufacturing approach to reduce total costs, including the OEM internal spend for managing cross-hemispheric supply solutions, which add risk and cost, especially for volumes under $50 million. Recent case studies demonstrate these realities in stark terms.
Ultimately, what is needed for manufacturing to return to the US is the political will and intestinal fortitude to champion it and establish the conditions that encourage it. There appears to be lots of political will these days expended on issues that will not benefit this country as much as the return of a manufacturing base. Will someone or some party decide to champion this cause with a realistic blueprint that voters can understand and support? And hold those they elect accountable for implementation?
With the US Presidential election season starting up again there is sure to be lots of rhetoric about re-establishing the US manufacturing sector, as has occurred in previous election cycles. Hopefully, this time around it will not be mere lip-service to appeal to voters that is then quickly forgotten once the election season ends. Donald Trump has stated that if elected president he would push for a 25 percent tariff on all products imported from China. His rationale is that he is for free trade, which the current situation is not.
Instead of trying to simply get cheap products to fill the shelves for US consumers, why not push for jobs that allow those consumers better lives and help drive an economic recovery? The American spirit has always been one of makers not takers.
My point being, "..is difficult to be replicated elsewhere."
The move into China was not a sudden one but a result of long thought out strategies in the silicon valley offices. Of course, if US persists and manages to balance the currency, there is no reason why manufacturing in the country cant be a good bet. But, do I really see the political will and policy to make it happen? Or how strong a pull would that be vis-a-vis the eastern players who have tasted the economic success and would be very eager to keep at it? It seems such an uphill task here onwards for the US, I bet it cant be done in the near future.
"The currency advantage, that helped China build up the manufacturing infrastructure and which brought the industry to its shores, is difficult to be replicated elsewhere."
If the US Dollar becomes so cheap (vs the EURO,The Yen and the Chinese Yuan) so as to make American products extremely attractive all over the world;then we can see the possibility of a resurgence in US Manufacturing just like in China.My bet is it can be replicated;if similar environment is created.
This is an excellent article with many valid points. The biggest problem I see is the skilled labor workforce. Yes, we have plenty of skilled workers able to build anything. The problem is many of these workers are still demanding a premium rate. Even though we have high unemployment with many employable workers, many that got laid off from high paying manufacturing jobs have a hard time accepting new jobs at more reasonable wages that allow companies to hire workers and stay in business. Whether it's the unions or the pride of workers, until our workforce stops thinking they need to be able to afford anything they want, many companies are going to have a hard time brining manufacturing back to the U.S.
Quantitative Easing and its impact on the currency valuations is a good idea, but is it enough to lure companies into bringing back the manufacturing to the states? I doubt it. The currency advantage, that helped China build up the manufacturing infrastructure and which brought the industry to its shores, is difficult to be replicated elsewhere.
Interesting! Of all those factors you mentioned, which is the one that is really keeping companies from bringing their businesses from China? From what you mentioned, it would be the electronics components supply but you can always ship that.
Besides the cheap labor, there are lots of other factors such as cheap electricity, cheap rents, lack of copyrights and labor laws etc that have China so successful in manufacturing. I think the US government will have to take things in their own hands and encourage the manufacturers to start producing. In the initial period the costs might be high, but in the long run I believe they will come down.
I don't know if you are following the Currency Markets but the US Dollar hit fresh all time lows against the Chinese Yuan,Swiss Franc,Australian Dollar and the Euro recently.
All thanks to Ben Bernanke's QE2 policy to explicitly destroy the value of the US Dollar.And its working.Will this be good enough to bring back all the manufacturing that has left Amercia for Asia??? I am not so sure.But its still worth a shot.Atleast the Govt. can say they are lending a helping hand to manufacturers(even if it means destroying the savings of the consuming class who earn in US dollars and have to buy Foriegn products-Do you see many Made in USA Tags nowadays???)
Adeniji, its true what you mention about the perception that US companies make quality products and its ironical that these are no more being manufactured in the US. This is true of not only the semi conductor but most industries with OEMs based in US and manufacutring in China!
I must confess that this is a good post Eric.You have said it all
1.USA has all it takes to become makers
2.That all it takes is the political will and intestinal fortitude to champion it and establish the conditions that encourage it.
I must also say that you made a good analysis which gave a good picture of what you are driving at.
the irony of it is that most of the developing countries where heavy importation of electronics and other consumer goods take place don,t even know that USA is not even manufacturing those goods and one of the major reasons why they buy and trust so much in these goods is because they are thought to come from the US and so quality and durability is not a question.
Now what happens if US now move in to manufacturing?
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.
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