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5 Reasons Western Factories Will Hum Again

Western plants may never be as busy as they were 30 years ago, but many will hum again. This isn't a vain wish but one rooted in the same economics that drove manufacturing over the last 20-plus years to lower-cost regions and resulted in most production being centralized in China.

Admittedly, the shift I am expecting won't be as dramatic or as far-reaching as the outsourcing of production to China, but over time, manufacturers will re-evaluate their strategies and weigh more carefully where they put their plants. The odds are China won't be as attractive a location as it has been in recent years, when knee-jerk reactions pushed high-tech OEMs and other manufacturers to transfer or outsource most of their production activities there.

Some readers responding to an earlier post on this subject argued that the West is no longer cost-competitive. I disagree. The West can be and will be cost-competitive again. It will also regain some lost jobs. Here are my reasons:

  1. Manufacturers cannot afford the dominance of the system by a single region.
  2. This is probably the strongest case for moving some manufacturing activities back to Western countries. The risks to the global supply chain inherent in the current system are too great for everyone to ignore. Last year's earthquake and tsunami in Japan and the flooding in Thailand exposed a serious flaw in high-tech manufacturing strategies. The industry overcame most of the associated problems within months, but it has also begun to reorganize production to avoid future problems.

    A real sense of urgency has yet to grip the industry, but many companies hurt by last year's earthquake, especially Japanese firms like {complink 12722|Renesas Electronics Corp.}, are quickly diversifying operations. In many cases, they are implementing redundancies, not just at home, but also in higher-cost but more stable regions. The rest of the industry is tracking their actions, and I believe they will learn to take similar steps.

  3. Chinese production today is inefficient and unsustainable.
  4. The plants haven't evolved into the high-tech version of next-gen products. In my opinion, they have dumbed down the production process by relying heavily on humans to do jobs that would have been automated elsewhere.

    A recent ABC News report confirmed something that was already well known in the industry: Most high-tech equipment manufactured in China is hand-assembled by hundreds of thousands of workers laboriously slapping pieces of metals and silicon together, polishing enclosures by hand, and listening to robotic voices announcing product verification.

    It's as if {complink 2125|Foxconn Electronics Inc.} took manufacturing back to the Dark Ages, gaining cost efficiency on the basis of low wages and the ability to throw a lot of human hands at tasks at all levels of the supply chain. Many of these jobs could be done more efficiently by robots, and eventually they will be. This system is not only inefficient, but also highly controversial, as recent reports over Apple's partnership with Foxconn have demonstrated.

    Eventually, Foxconn and other manufacturers in China will have to adopt more automation, which will drastically reduce the number of hands that touch products. Beyond this, what is the China advantage? Many, including the late Steve Jobs, have argued that workers in China can be mobilized at a moment's notice to manufacture products. Well, so can robots. And further, they don't generate emotions when a fire erupts in a processing plant, and they don't commit suicide. If automation were accelerated, the China advantage would quickly disappear, leaving the same concerns and cost issues associated with facilities in the West minus the negative PR.

  5. The West needs the jobs.
  6. Western nations cannot survive solely on the “service economy.” There just aren't enough banking, finance, software development, healthcare, and other so-called services jobs to go around. Plus, many of these positions require a higher level of skills that many in these societies won't attain for various reasons.

    To support economic growth and increase consumption, Western societies need to supplement services jobs with manufacturing positions. These won't come from energy and government-sponsored infrastructure alone. Even companies manufacturing products in China need Western consumers. Apple offers its new products in the United States first before moving to other countries. Avoiding mutually assured self-destruction requires a new thinking about the global economy that I believe will curtail the grand outsourcing to China.

  7. Higher costs in China are already driving change.
  8. Steve Jobs reportedly told President Obama that Apple would never again manufacture its products in the United States. If current Apple CEO Timothy Cook understands the global manufacturing supply chain as well as has been portrayed, he will repudiate the Jobs doctrine and explore ways to return some production to the US.

    The cost to Apple and other manufacturers of maintaining a single-source region for production is rising steeply and will continue to climb in the coming years. Apple's main contractor in Asia, Foxconn, has been hiking wages for its workers and may have to keep doing so every year to satisfy restive employees. How much longer before the China wage advantage erodes, leaving a dramatically different competitive environment?

    China may maintain its cost advantage over the next five to 10 years, but some other developments are driving up the total cost of product ownership for manufacturers, and these will factor into outsourcing decisions. One issue is the outcry over labor conditions at Foxconn plants. In response, Apple has published a listing of its suppliers and has paid the Fair Labor Association to review working conditions. (See: Will Apple, Foxconn, & Sweeteners Satisfy Labor Activists? and Who’s on Apple’s Supplier List?)

    Will this be enough? No. Apple still is facing a tsunami of negative press. To reverse this, it will need to take more substantive action, such as asking Foxconn and other contractors to manufacture some products in other regions. A supplier audit cannot delete the portrayal of Apple as a company that makes billions in profits on the backs of low-paid Chinese workers living in dormitories and working at least 60 hours a week.

    There are also legal implications for Apple and other manufacturers. A lawsuit before the US Supreme Court pitches a Western company against a Nigerian community, which alleges that the firm colluded with a dictator to pollute the country. Peter Weiss wrote about the case in a New York Times op-ed last week:

    The Supreme Court will hear a case with many potential ramifications for American and International law, and for corporate responsibility for human rights around the globe. The justices will be asked to decide whether the corporations to which they have been extending the rights of individuals should also be held accountable for crimes against human rights, just as individuals are.

    This case has significant ramifications, especially for the high-tech industry. Any alleged violations of “human rights” in a foreign manufacturing facility can become the basis for an expensive lawsuit in a US court. That means manufacturers will no longer be able to put blame for cattle-pen living conditions on China or contractors. Could some human or labor rights organization drag Apple, Dell, HP, Nokia, and other high-tech OEMs to court for conditions at their contractors in China? Yes.

  9. China's political and economic system is inherently unstable.
  10. This is another controversial issue — and one many of us would rather ignore. The country's economic success is built on a doubtful version of capitalism tacked on to the back of a rigidly communist political system. If you are a shareholder in an OEM or another type of manufacturer in China, you should be concerned about how its political system is evolving, because it will impact your investment.

    Many of us would like to think China is immune from events occurring in other parts of the globe, including last year's Arab Spring. But is China really that different, and will its citizens stop demanding changes as the country bites deeper into capitalism? We can hope it will continue to manage its transition into a market economy peacefully, but what happens if the country encounters massive protests that disrupt the supply chain?

    The Chinese government is rethinking the country's future and how fast it should evolve. In a recent report done in collaboration with the World Bank, “China: The Case for Change on the Road to 2030,” Chinese officials looked at how it should restructure. According to the Washington Post, the officials concluded that China needs to reduce the role of state-owned enterprises, “allow more competition in the banking and financial systems, give more support to innovation, and allow its population greater mobility by easing current residency restrictions.”

Is the global manufacturing industry getting itself ready for 2030? Will it continue to see China as the sole or most optimal manufacturing center? I believe OEMs and other producers will switch tactics, even if this involves merely hedging and reducing risks by requiring contract manufacturers to put plants in other countries. Places that will benefit from this swing will include Brazil, Mexico, Eastern European countries, and even places in North America that can handle higher-end, automation-heavy production.

All this may not add up to much now for companies still bent on competing solely on immediate product cost, but many executives understand fully how unexpected events can derail carefully laid plans. For such companies, scenario planning is a part of daily operations, and right now, we are heavily tilted as a global manufacturing community toward China. That alone is a problem.

33 comments on “5 Reasons Western Factories Will Hum Again

  1. DataCrunch
    February 28, 2012

    Some projections for 2012 on US manufacturing and their sectors:

  2. elctrnx_lyf
    February 29, 2012

    Dave, Your graph talk itself. Manufacturing across all the major sectors is going up.

    Bolaji I certainly agree with your point on instability of china, I do feel the companies with long term plans will certainly diversify their manufacturing locations to different parts of the world. As you discussed the human right could be next major reason for the companies to take the production of china in the future.

  3. bolaji ojo
    February 29, 2012

    Dave, If the US can hold aerospace, automotive and medical equipment manufacturing jobs, why can't it keep jobs in other segments? Why is the argument about lower wages in China not holding for these other sectors? If we can get technicians in China to build planes why has Boeing kept jobs in the US?

  4. Barbara Jorgensen
    February 29, 2012

    Two of the reasons mil/aero and medical have stayed within the US/Americas is security and size. Exporting certain technologies is still a no-no in mil/aero. Medical equipment and airplane subassemblies are simply too big to ship overseas and then back again. There are also qualifcations EMS companies have to obtain in order to manufacture for these markets.

    None of that is insurmountable if companies wants to outsource overseas. But so far, I think the cost vs. risk equation still favors onshore manufacturing.

  5. Ashu001
    February 29, 2012

    Bolaji,

    You forgot another important and equally critical issue at hand;which is very-very important for most big Manufacturers when they consider making Big Ticket investments Globally.

    They are very,very worried about whether their precious Investments not just return ROI but also are protected from Competitors and especially the threat of Reverse Engineering.

    And everybody knows China's record in this area.Its an open secret that they are steal and use IP(which many Global companies have struggled and invested Billions into);more often than not most of the initial Designs,etc are stolen from the Global Manufactuers plants in China by insiders only.

    They then go out and build competitive systems(for less) supported by the benevolent State through Cheap credit & loans.

    However,most Major Western Manufacturers continue to think that if they have to do business in China(the Billion strong market growing at over 8% annually is a big-big carrot);giving up their Precious IP is a price to pay(and they remain willing to pay it)-Even if in the long run they run the risk of being priced out of the Chinese market by lower priced copycats.

    If that is the case,then I don't expect a major sea-change in Global Manufacturing back to America.

    Regards

    Ashish.

     

  6. Ashu001
    February 29, 2012

    Bolaji,

    You answered a significant part of the question yourself.

    Automation and Security concerns.

    A lot of the other manufacturing is lower level stuff which needs access to Labour and thanks to the “Boom” in the Services sector,American Labor got priced out of the segment here in the 1990s and 2000s.

    However,this is now changing and American Labor is gradually becoming more and more affordable as the Obama administration itself attests and therefore more attractive for manufacturers globally.

    Its a different matter that American Labor is becoming cheaper because its more and more desperate to find and hold onto work(its a hand to mouth situation for most such folks) but thats what happens when you let PHDs who have never ever worked in the real world like Ben Bernanke control the Economy and especially the flow of credit.

    Ashish.

     

  7. ITempire
    February 29, 2012

    @ Barb

    Its good that NA has kept control over medical equipments through quality inspection procedures and qualification criterias. In developing economies and in my part of the world, China has even ruled medical equipment market as quality-focus and inspection toughness isnt as stringent as in NA.

  8. ITempire
    February 29, 2012

    @ Bolaji

     “If the US can hold aerospace, automotive and medical equipment manufacturing jobs, why can't it keep jobs in other segments? “

    I think for automotive industry, Japanese are just too efficient at producing quality cars that simultaneously comply with road safety requirements. Also unlike China, Japanese are also known for their high quality goods despite keeping the costs low (one of the reason being their cheap currency) there West will have to work hard to gain some market share over there.

  9. mike_at_DCA
    February 29, 2012

    Bolaji, I think there are forces in both directions. Bringing manufacturing back to the US won't necessarily result in many jobs; the way to do it here is to automate, not hire armies to do repetitive tasks. Your point, however, about single sourcing the location is one of the critical issues and one that manufacturers continue to fail to assess the risks of adequately.

    As carbon becomes taxed, however, manufacturers will have to view their supply chains through a new lens, and it's not going to be pretty. The costs of moving materials, parts, and systems around the world will be revealed, and be in stark contract to today's view of “efficiency”. This will result in an optimization of the supply chain that will shorten it and localize it. It will take 20 years, but will result in a more even distribution of supply chains across the world.

  10. Taimoor Zubar
    February 29, 2012

    I agree the manufacturing is no longer attractive in China. However, I have a strong feeling that there are other regions which would emerge as the new manufacturing hubs and attract the OEMs to outsource. This could be India or countries in Africa. They still have the advantage of low cost labor that China once had.

  11. Taimoor Zubar
    February 29, 2012

    the way to do it here is to automate, not hire armies to do repetitive tasks”

    @Michael: I agree with you. The industry practices in the US are more on the automation side as opposed to manual labor. This is why we may not see a lot of jobs being created on lower levels even if the industries come back. This may, however, result in more jobs for engineers and plant experts.

  12. Ashu001
    February 29, 2012

    Waqas,

    The Japanese have come a long-long way from when they were products were just the cheapest in any category.

    In case you are unfamiliar,I think I should correct a misconception you have-

    The Japanese Yen has appreciated by 31% vs the US Dollar in the last 5 years alone(From 1st Jan 2007 onwards to today).

    Against the Euro it has appreciated by 25% in the same Time frame & Against the British Pound it has appreciated by an incredible 45% in the same Time frame.

    If the Yen was cheap then,today it is super-expensive.So expensive in fact that the Japanese corporations are begging their Central Bank to weaken their currency as at these values they are all making losses.

    The real reason why the Japanese are producing the best products is because they are able to evolve according to the needs of the market.

    When Congress threathened to impose all sorts of Sanctions on Japanese manufacturers for stealing American jobs ,they moved a good chunk of manufacturing to America and Mexico;when the Chinese started complaining about technology transfers they moved plants to China.

    This ability to evolve and innovate is why Japan & today South Korea as well are so good in the Technology space.

    The currency is a factor which they can work with even if it isnt to their advantage.

    Ashish.

  13. Ashu001
    February 29, 2012

    Guys,

    One should not forget the role inflation plays here also and especially in deciding where manufacturers should base their major plants.

    As the following set of news out of China clearly shows,Inflation in China is growing like crazy,which forces Authorities to do Two things-one is raise Interest Rates and the other is to raise the Minimum Wage.

    Both these moves raise overhead for manufacturers in China,especially those who got used to a never ending supply of Cheap labor and Cheap credit.

    Suddenly neither of these two factors are available.

    Also,the fact that suddenly Crude Oil prices have hit the roof means that most manufacturing has to move to where the markets are.

    And since the largest market today is America then its but natural that manufacturing will move closer to America to minimize transportation expenses.

    But never,ever underestimate the wily Chinese and their will to conquer the world's markets.What happens if they control all the Crude oil in the world or price it in a Currency other than US Dollars???

    This game is'nt over yet.Not by a long shot.

    http://www.bloomberg.com/news/2012-02-28/shanghai-raises-minimum-wage-13-as-china-seeks-to-boost-consumer-demand.html

    http://www.reuters.com/article/2012/02/29/china-banks-loans-idUSL4E8DT1OV20120229

    Ashish.

  14. Ashu001
    February 29, 2012

    Waqas,

    Most consumers are very-very smart.

    They know what Chinese products stand for-Cheap and Low quality.

    Thats why you hardly see anyone paying Top Dollar for them.

    Ashish.

  15. bolaji ojo
    February 29, 2012

    Michael, I wasn't going to put a timeline on what I am convinced is an inevitable shift but I agree with your estimate of over the next 20 years. As you rightly noted, also, it's unlikely that repetitive work that requires a mass of people will be shifted to the West. It is more likely that automation will eliminate the need for a large number of people while requiring highly specialized monitoring that can be provided at reasonable costs here.

    The other important issue you noted and which I wonder if anyone aside from experts like yourself pay attention to is the role of regulation in driving change. The carbon tax as it is known will play a role and one day, companies will be taken to task on the amount of global emission from their products. Once this becomes clearer greater efforts will be paid to this constant shift in products from one supply chain region to another and the transportation of products to end markets.

    The question I am hoping you can help answer is this: Are manufacturers already examining their supply chain using this lens of carbon emission or is this not a concern at all for many in the industry? If this is not a burning issue for many when and what would drive the market to focus on it?

  16. chipmonk
    February 29, 2012

    Bolaji Ojo is now “prophesizing” that manufacturing will return to the West !

    None of the 5 points raised by him are anything new or even germane.

    Just 3 months ago he was declaring that more and more outsourcing of mfg. to China is inevitable.

    He seems to have now aligned with the prevailing anti – outsourcing wind and made an amazing 180 degree turn and dishing out sweet nothings to distract the future victims of outsourcing and technology transfer to China.

    Wall St. will still keep sending Manufacturing to China and all the technology needed to support it. Even if Apple doubles payment to Foxconn and they pass it on to their assembly workers in China the impact to Apple's bottomline will be negligible.

    Even for semiconductors the game is almost over ( Huawei, which had grown by stealing Base Station designs from Motorola, has just brought out a Quad core ARM based SoC Application Processor chip that is faster than the nVidia Tegra 3 ).

    There are no new technologies in the horizon to replace the riches from semiconductors. R&D for Bio-Tech is labor intensive and that game will go to China. The US can no longer even afford a manned space program.

    So long as there are mindless consumers in the US and their masters in Wall St., there is no hope.

    The US economy has been destroyed from within by termites.

  17. Ashu001
    February 29, 2012

    Bolaji,

    I for one am not sure a Carbon Tax will ever happen on a Global Scale.

    The reason is its impractical and unproven that Carbon emissions actually cause Climate change (the so-called Climate Science has been totally discredited today).

    Also,I am not sure whether u are following the EU decision to start charging Carbon Taxes on flight tickets to and from the EU.America and most of Asia got really made at this unilateral decision by the EU and the Chinese even went ahead and banned their airlines from charging or paying these fees to the EU.Consequently,the Fees apply only to Non-Chinese Airlines flying to and from the EU.

    Even parts of the EU govt admit that this is nothing but a way to generate revenue for a Bankrupt Europe.

    So where is the support for a Carbon Tax going to come from then?

    America?Forget it.

    Asia?Not interested.

    Europe?Not important anymore.

    Japan?Too small to make much of a difference.

    Regards

    Ashish.

  18. Ashu001
    February 29, 2012

    Chipmonk,

    Bolaji is just expressing his ideas and thoughts on this Website.It hardly matters whether things actually play out the way he thinks they will or should.

    I for one will never underestimate the ingenuity of the Chinese and their ability to extract themselves from one tough spot after another.

    As for Wall Street and Corporate America-At the end of the day,they are there to make profits for themselves and their shareholders.If the best way to do that is by bringing production onshore ,then so be it.

    I dont think we should force them to do something which damages their long-term prospects and competitiveness.

    The Biggest challenge America faces today is its Huge Debt burden and how to manage it-Close to USD 60 Trillion.

    The biggest Challenge China faces today is Inflation , its over-heating economy and Large-scale malinvestment .

    If both these Giants get their houses back in order,we can continue growth else we are heading back into a Great Depression to beat all Depressions.

    Ashish.

  19. bolaji ojo
    February 29, 2012

    Ashish, It's always a pleasure reading your view. If I could predict the future I would have bought Apple Inc.'s shares at $200 or even $300. I didn't believe it was worth the valuation then and now that it is at $542 and seemingly on the way to $600, I still wouldn't buy it — again, because I believe it is overvalued.

    My point is that, you are right. What I wrote in the article is not something delivered to me by an oracle. I looked at trends and wrote what I believe might happen. They may never happen or only a portion might. Even Warren Buffett said he wished he had bought Apple's shares at $200. He even advised Steve Jobs to do a share buyback at that price as the best use of Apple's swollen cash account. Neither of these happened.

    In order words, the future is not as predictable as some may argue. The best we can do is dispassionately review the facts as we know them and make some reasonable guesses then try to hedge the risks.

    Many people forget business is not a case of us vs. them. China is both a competitor and a partner with the United States and other Western nations. In some areas the US will win and in others it will lose out to China. The US is still the world's biggest economy and it will take some years still for China to catch up. Many predict it will — I am not banking on that, though I expect it to happen also. My focus in the article was on the imbalance in the system. It is not in China's interest and it is not in the interest of the rest of the world. Somehow, someday, somewhere the pendulum will swing back again.

  20. bolaji ojo
    February 29, 2012

    The situation in Europe regarding the carbon tax on aircrafts traveling to Europe demonstrates how muscle flexing is part of the new economy. The EU has threatened and China called their bluff. This won't be the end of the matter, however. As a bloc, the EU nations' economy is the biggest in the world but as you are no doubt aware they never really operate as a bloc. China, too, notwithstanding its current action, cannot just thumb its nose at the rest of the world. How does a country legislate that its airline should not pay taxes demanded by another country when you fly into that nation?

    It's silly of the Europeans not to discuss this and sort it out quietly with China and it's even sillier of China to just issue a law banning its airlines from paying tax demanded by the EU. Let's see who wins.

  21. Anna Young
    February 29, 2012

    Chipmonk, You seem angry about something or perhaps you didn't take the time to follow the logic in the blog. This is not about individuals or countries but more about the entire high-tech industry. The supply chain is lopsided and it doesn't take a genius to figure this out. Even if I don't agree with all of Bolaji's point, I submit the swing to western manufacturing he points out is inevitable.

    On the issue of Wall Street and companies, this is a simple case of who pays the piper calling the tune. Not complicated at all. If I give you my money, I expect great returns on it or you are out of a job. Executives get it. Do you?

  22. ITempire
    February 29, 2012

    ” it's even sillier of China to just issue a law banning its airlines from paying tax demanded “

    Its hilarious that Chinese passed such a law. However, on a serious note, this is an indication of an extremely powerful economy. But the way I see it, its the Chinese who need the Europeans as China exports a lot to EU. Its not the other way round as EU is by no means price-competitive against China. Passing such laws will only do bad to trade benefits that China is already getting. 

  23. Anna Young
    February 29, 2012

    Bolaji, It's possible manufacturing may revive strongly in certain parts of the West again but the jobs won't be coming to my corner of the globe. Manufacturing has disappeared in many key economic segments in the United Kingdom and due to cost reasons it may never revive again. Fortunately, it is also a segment of the globe that has cornered another economy sector — finance and services.

    In the United States, the story is similar. Manufacturing is moving to China but the US is still a major powerhouse in other areas.

  24. Anand
    March 1, 2012

    @Bolaji thanks for the post. I totally agree with most of the reasons you pointed out. I think rising oil prices will also help west get back some manufacturing activities because rising oil prices will push the transportation cost higher.

  25. Anand
    March 1, 2012

    “Even for semiconductors the game is almost over”

    @Chipmonk, I am not sure if this is true. Are you aware that recently IBM and GLOBALFOUNDRIES began its first production At New York's Latest Semiconductor Fab ?  Moreover I ntel has also started building world's first 14nm fab in Chandler, Arizona. So its totally wrong to say that semiconductor game is almost over.

  26. Anand
    March 1, 2012

    This could be India or countries in Africa.

    @TaimoorZ, I don't think India is more attractive comapred to China. India is also facing inflation problems just like China. Moreover India faces major problems like corruption. Also the  government  at the centre is very  unstable because its a coalition government. So comapred to India, China is in better position. I guess African countries might attract lot of investment.

  27. Adeniji Kayode
    March 1, 2012

    I agree with you on that. Increase in fuel prices will cause alot of innovation sin the next few years.

    In my ares, the Government is looking more into farming which will also increase the rate of manufacturing in years to come

  28. Adeniji Kayode
    March 1, 2012

    I agree with you but Africa is already an attraction to investments and investors and the list keeps increasing day by day. But then its only for investors that are ready to over-look the challenges.

  29. tioluwa
    March 1, 2012

    So invariably, what will drive the west back into manufacturing is the economic pressure, the increasing desatisfaction from outsourcing to china, and the battered ego of the west.

    I would like to know if these are really sustainable reasons to go revive the weak manufacturing sector? 

    What does the west have to offer that china has failed to offer?

     

  30. bolaji ojo
    March 2, 2012

    TiOluwa, How about the opportunity to regain some control over the supply chain, provide jobs for their citizens, gain some political stability, revive consumption (unemployed folks can't buy much), reduce pressure on the society from having a large unemployed workforce, rebalance the geo-economic global landscape, avoid being swamped with products from a poorly regulated economy, ensure fairness to workers and sleep better at night knowing your country is not being systematically starved of much needed work?

    For the companies, how about a shorter supply chain, avoidance of unwanted publicity about a production system situated in a country that allows its citizens to be poorly treated by manufacturers, assurance a partner is monitored, regulated and forced to comply with globally accepted standards and being able to sleep at night knowing if a plant blows up it won't be because of negligence that could result in a very expensive lawsuit in a local court and possible reduction in market value?

  31. Taimoor Zubar
    March 4, 2012

    Africa does have a strong attraction as far as labor costs are concerned. But labor is just one component to manufacturers. African countries also need to work on infrastructure development and technology to come up to a level where they can attract hi-tech industries.

  32. tioluwa
    March 5, 2012

    BOLAJI,

    Now those are most critical and important reasons for the west to revive manufacturing on a large scale, but a question to ask is: what drove manufacturing away from the west in the first place?

    Was it just the desire for cheaper manufacturing cost, or weren't the benefits you listend being derived when manufacturing was being done, so why was it allowed to die in the first place?

    Did companies suddenly feel their previously short supply chain, and other benefits were not significant enough for them to keep outsourcing locally?

    In summary i think the “WHY” of the matter will determine its possibility and sustainability.

  33. dalexander
    March 10, 2012

    Bolaji, I think you have a crystal ball. Point 2 is particularly insightful. As I witnessed first hand during the outsourcing craze, many of our assembly houses started selling their pick 'n place equipment for dimes on the dollar. Also the machine shops I was working with we're picking up CNC equipment at fire sale prices. For those assembly houses that kept their capital equipment assets, the challenge was how to keep enough business coming in to keep the lines going and not lose highly trained employees. The whole thing was rather sad. China's hand labor is plentifully so I don't see it going away anytime soon. Machines have a fixed operating and maintenance cost and people don't. You can always lower the cost of human labor when times are tough. Automation may bring some jobs back here, but will it be enough to make a difference in the overall employment numbers? Maybe somewhat, but somewhat is not what we are going for. With tax de-incentives here, how many factories do ou think will want to come back until they see a distinct advantage to the bottom line for their shareholders?

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