For robots, there's no place like home!
For years, we've watched much of the US manufacturing base move to other countries, especially China. This has been especially noticeable in high-tech, where first televisions and then personal computers and smartphones moved to lower-cost manufacturing. This also happened in the European Union (EU).
In the last couple of years, the economic pendulum has swung back towards US manufacturing. This is a result of inflating labor rates in China, coupled with high unemployment in the US and Europe due to the recession. Low US energy costs, a result of fracking, also impact the equation. Off-shore manufacturing is no longer the bargain it used to be.
Long pipelines and the resulting increase in risk and inventory costs are also strong factors. Add to this some saber-rattling in Asia and a less than friendly climate for outside investment, and prudent mega-enterprises are hedging their bets.
In many ways, this is a bit reminiscent of the Japanese bubble of 40 years ago. The US finally out-performed Japan on costs and matched quality, while leading on innovation. Japan resolved many issues by on-shoring car production, for example.
With the loss of China's cost leadership, what is likely to happen to the manufacturing base? We are somewhat at a crossroads. The cost equation has been getting smarter with time, and now considers the costs and risks of overseas sourcing, so a scurry to find the next “China” is unlikely. In fact, the whole Asia area has increased base costs to the point that there is no obvious strong candidate as a low-cost manufacturer.
Foxconn, maker of all things Apple, and employer of over 1 million workers, is taking this issue seriously. They are looking at a robotic future, where the repetitive assembly work is done by new generation robots. A plan to replace most of those workers is already under way, but one has to ask where the best place to place the robots is. Foxconn is planning to build US factories and is already manufacturing in Texas and Indiana.
Robots require people to run, but these are engineers and technicians, not laborers. The cost of these, though, is small when amortized over a lot of robots, so the over-arching issue is a supply of trained or trainable people. This suggests the US as a better base for the effort.
Couple this with the much shorter logistics chain that US manufacture enables and the benefits of placing robots in the US are strong. It's worth noting that this is already happening, specifically in the auto industry, where tax incentives are added to business prudence.
New technologies are potentiating the on-shore flow. “Just-in-time” has been a mantra in manufacturing for decades, though the rush to cheap assembly in China pushed it to the sidelines. 3D printing, plasma metal cutting, and even cooperative logistics all address this issue in the US arena, with the result that short efficient pipelines are possible again.
There are discernable impacts of on-shoring already. The freight industry is seeing reductions in Asia trade attributable to business moving back. Looking back a couple of years, the editorial language has stiffened, going from tentative signs of a trend to much more bullish statements.
Increasing costs in China, better robots (which are already much cheaper than older generations), and a welcoming US environment will accelerate the trend over the next few years. The direct jobs impact of the on-shoring will be relatively small since most workers ill be robots, but the snowball effect through the logistics chain will be substantial.
The government has an important role in this. Proposed by the Obama Administration, a tax incentive program similar to the auto industry's for a broader range of products would make this all happen sooner rather than later. Additional leverage could be as simple as encouraging the Apples of the world to repatriate off-shore profit as US plant investment. This would reduce unemployment, and increase the taxpayer base, so it would indirectly benefit the general fund, while being a win for the manufacturers and communities.