I agree with you that there is all kinds of risk in single sourcing anything (whether its parts or products or mfg man hours, etc.) There are all kinds of articles that talk about how outsourcing has influenced the U.S. economy in negative ways and I thinj a lot of people agree that mfg jobs should return to the states. But when it comes to the type of assembly work that we outsource to China, I wonder who in the U.S. would actually want those jobs? I am curious to hear what your 5 reasons are that jobs will come back - - because if there isn't incentive for manufacturers to do so, I wonder who will change their production methods?
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.
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.
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.
"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?"
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.
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.
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.
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.
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?
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.
EBN Dialogue enables you to participate in live chats with notable leaders and luminaries. Open to the entire EBN community of electronics supply chain experts, these conversations see ideas shared, comments made, and questions asked and answered in real time. Listed below are upcoming and archived chats. Stay tuned and join in!