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What Will It Take to Revive US Manufacturing?

US manufacturing grew more slowly in February. The Institute for Supply Management reported last week that the factory index fell to 52.4 from 54.1 in January. The good news is that manufacturing in the United States has expanded for 31 straight months, according to the index. New orders increased in the month, but at a far slower pace.

President Barack Obama continues to tell us that manufacturing matters. He is right. Manufacturing growth could, in fact, help the country climb out of a deep economic rut. In the fiscal 2013 budget submitted to Congress, Obama's proposal creates a new $1 billion private-public partnership program aimed at commercializing and manufacturing US-developed technologies.

What would it take to bring back more electronics manufacturers to the United States, and would consumers support the move? In January, The New York Times ran an in-depth piece on how the US lost out on manufacturing the iPhone from {complink 379|Apple Inc.}. Electronic industry executives know advanced manufacturing techniques drive increased productivity.

There are a couple of forces (rising labor costs in China and depreciating currency pushing up prices) working in favor of bringing manufacturing back into the US. A reduction in the time between product conception and delivery to customers is also in favor of US manufacturing as it increases the advantages of having plants closer to end users. However, entire supply chains for components have moved off shore, which makes it a big challenge, according to Andrew Bartels, vice president and principal analyst at {complink 7329|Forrester Research Inc.}.

There are other challenges that could hinder the return of high-tech manufacturing to the United States. Many of the equipment and factories that once handled local production have been sitting idle for years. The cost of bringing them up to date would be extremely high. Moreover, the changing face of US workforce presents another problem. Not many high school kids graduating today say “I want a factory job,” Bartels said, unless the offer is from IBM, Hewlett-Packard, or Intel, three electronics companies still manufacturing in the US.

Companies would need to make a commitment to bring production for a range of products back in to the US, and schools would need to make the commitment to train workers. There are many technologically savvy workers in China. To compete, “we're asking US high school graduates to become computer literate, mathematically sophisticated, and analytically capable with good mechanical skills,” Bartels said. “It's not something the US education system is producing in mass quantity today. That's a problem. It's not impossible, but we need to do a lot of work on our education system and provide better guarantees they will have jobs.”

Bartels said the industry could also rethink the definition of manufacturing, moving away from hardware and more towards software or digital goods, which continue to be increasingly important for electronics manufacturers. Bartels said the US manufacturing tech sector is adding jobs, but these workers are in software manufacturing, rather than hardware.

Forrester estimates all segments of the US tech industry employed about 3.2 million Americans in 2011. The researcher further said:

    Breaking down the industry by major sector, the telecommunications industry provided the most jobs, with 964,000. Close behind is the software industry, with 953,000 jobs, followed by the IT consulting and systems integration services industry with 689,000. The IT outsourcing industry employed 292,000; the computer equipment industry, 174,000; and communications equipment industry, just 114,000.

    While the US private sector has added about 2.2 million total jobs since the recession in the first quarter of 2010, employment is still 6 million jobs below the pre-recession peak in the first quarter of 2008. In contrast, employment in US IT firms, excluding telecommunications averaged 2.2 million in the fourth quarter of 2011, up from 2.15 million at the pre-recession peak in the first quarter of 2008 and 2.1 million at the recession in first quarter 2010.

Changing the thinking of millions of US workers to focus on manufacturing in the short term might be easier than revamping the educational system and rebuilding facilities, but, in the long term, even this could hurt the economy and stifle any type of hardware manufacturing.

There are exceptions, according to Ann Grackin, founder of Chainlink Research, pointing to high-tech plants with low labor costs. The type of manufacturing that could come back to the US resides in jobs where the cost of labor as a percent of the manufacturing remains low. Those types of manufacturing jobs include semiconductors, biotech, and nanotechnology, even imaging equipment that's low-touch and high-tech.

Grackin, however, doesn't see electronics manufacturing returning to the US in a way similar to its heyday in past years. “The idea of lower-lower-middle class people being employed through manufacturing jobs won't happen,” she said. “You also can't compete against the inevitability of the global economy.”

Could consumers afford to buy goods made in the US? Yes, Grackin said, but they won't. Consumers, for the most part, will buy the least expensive products unless they are visitors from another country and want to purchase something made locally. “The US isn't the only one suffering from this disease where consumers want low-cost items no matter where they are made,” she said. “Again, there are exceptions. Some consumers will opt in for the locally organic grown or made items, from consumables to hardware.”

11 comments on “What Will It Take to Revive US Manufacturing?

  1. Barbara Jorgensen
    March 5, 2012

    One of the major networks did a series in which it emptied a family's home of foreign-made goods and replaced them with US-made goods. It was not prohibitively expensive to replace the goods. Smart companies can make up in efficiency what it costs in labor. One of the problems is too many companies aren't looking for added efficiencies.

    I agree that US wages can't compete with foreign wages and won't for awhile. But there are other ways to save costs. Retaining the status quo–where jobs exist for the sake of keeping people employed–won't work. Oddly, the US is often last to adopt the best practices it invented.

  2. Vets2Work
    March 5, 2012

     

    Honestly we all should look at expanding H.R. 3596 – United States Call Center Worker and Consumer Protection to include returning USA veterans.

    This proposed legislation is intended to bring jobs back to America however both India and the Philippines generally believe this bill won't pass and in fact they are stating their economy will grow by another 15 Billion USD this year in outsourced work from the USA. I say we couple these proposed bills and keep the 15 billion in the USA with the majority focused towards our veterans. I would propose that any company in the USA that brings their outsourced positions back to the USA not only keep their tax credits but gain twice as much for bringing these positions back and employing US veterans. Let the companies that continue to ship job offshore pay for this with the fines that will be levied upon them.

     

  3. Nemos
    March 5, 2012

    “The US isn't the only one suffering from this disease where consumers want low-cost items no matter where they are made,”

    Yes, this disease occurred the time when the consuming equipment was sold in a Hight Level price, and the people wanted two or more monthly wages to be spent for buying a video. Of course, that time has passed, but it left this way of reaction to want low cost items and only through correct information about the consequence of buying low cost items will turn this situation backwards.

  4. bolaji ojo
    March 5, 2012

    When a nation takes steps to defend its survival or territorial integrity it is considered good and necessary. Sometimes, though, national survival goes beyond protecting a territory. It should also include ensuring the economic surivival of the nation and its citizens. If we begin to look at employment like this, we might begin to introduce and enforce policies that ensures citizens can make a decent living. Capitalism is not necessarily laissez faire.

    There's a lot a government can do to motivate executives to keep some jobs local by finding people who may be willing to do the same jobs done overseas at home for a competitive salary package.

  5. Laurie Sullivan
    March 5, 2012

     

    Vets2Work, this is probably the most interesting piece I've researched in a long time, because there are so many views on the topic. It seems simple, but it's really incredibly complicated. The views of people regarding this topic make it complicated; and the time it would take to turnaround a culture to support U.S. manufacturing, much too long. One person I spoke with suggested something similar to your view, but at the end of our conversation he admitted it probably would not work because vets don't give politicians enough support during an election year. I have friends in Detroit that are packing up and moving to other countries, such as Ecuador, where they think they can live better lives than in the United States because they are retired and can no longer afford to live here. After working their whole life as school teachers to make the U.S. a better place for future generations, it seems a little off that we should see this happen. 

     

  6. elctrnx_lyf
    March 6, 2012

    Definitely it is difficult to bring the manufacturing jobs back to US without changng the attitude of engineering passing out of cnadidates. At the same time consumers should be ready to buy quality product with the little premium also. 

  7. tioluwa
    March 6, 2012

    This analysis really brings together all the factors at play here, and really, it's not going to be an easy thing for the US.

    I think it's going to take a lot more than companies trying to revive manufacturing, it is going to invovle the government trying to rebuild a critical sector of the economy, companies coming up with inovative ways to reduce production costs, consumers seeing a reason to buy the products for the value they provide (i believe iPhones are not the cheaptest smart phones on the market, but they rule the market all the same) even if the price is a little higher than what they can get else where.

    Reviving US Manufacturing is more than growing a business and making money, it is a task for the government, the companies and the people. 

    Alot of long term investments will be involved.

  8. Anna Young
    March 6, 2012

    Laurie, you have highlighted various factors in favour of returning manufacturing back to the US. However,this statement that ; “Many of the equipment and factories that once handled local production have been sitting idle for years” is intriguing. I agree and concerned. I'm know it will cost much to resurrect them. I'm wondering, Is this not the time to encourage home production? High tech industry have piles of cash (Apple for example) sitting idle in the their bank accounts. I think the government can initiate moves to support and encourage the revival of these manufacturing plants. With financial backing or some sort of  tax initiatives from the government, it can be done. This might even encourage consumers buying home made goods again. The long term results will certainly be beneficial to all. 

  9. Laurie Sullivan
    March 7, 2012

    Anna, It is the time to ecourage innovation, but I don't think companies want to invest. I spoke with an exec yesterday who explained how his company is caught in a catch-22. Investing to bring manufacturing back to the U.S. would cost thousands for companies, most will require millions, and they would just rather spend the money elsewhere. I remember seeing a resport on one of the Sunday morning shows that walked through how GM will reopen some plants in 2013. (Why wait that long?) I found it interesting that some auto workers have come back to the plants as non-union, making much less than others they stand beside in the factories. They want jobs and they want to see manufacturing thrive again in the U.S.

  10. Poh
    March 11, 2012

    China, India have many young high school and technical high school graduate. A factory worker's basic salary is around USD200.The salary of worker from the inner China is much even lower.Some worker's yearly salary is around USD4000. In China, many college graduates work in the factory. This is a trained skilled workers. But they are treated a cheap and low-end worker.

    If these people are properly trained, they can do almost everything what the US worker is capable of. Today, Chinese can produce anyhting from low end low cost consumer goods to high tech products.

    Anyway, it will be a matter of time that Indian capability in par with Chinese. I believe India will be a lot more aggressive than the Chinese.

    US today can say Chinese have stolen jobs from US. However, India is next that will take the all US jobs (manufacturing, banking, service, R & D) in near future.

    US needs to create entire new product line, new service, more than just computer, mobile phone, iphone, iPad, TV, etc.

    US is highly innovative country. I remembered watching the show “Back to the future III”. I recalled the professor 'feed' the train with garbage to power up the train. Since then, I am still waiting to see this to happen.

    The road to real need and create a better world can be very tough. But, US should have the capabilty to lead the world to better peaceful future.

  11. Laurie Sullivan
    March 18, 2012

    Thank you for your insight, Poh. Aside from education, it's the way of thinking, the mindset, that the U.S. needs to change. 

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