Last quarter, when Apple CEO Tim Cook announced that his company would invest $100 million in US manufacturing, Simon Grant, president and CEO of Automation GT, said the announcement provided a high-profile example of the recent onshoring trend, which is predicted by some to be at the forefront of company agendas throughout 2013.
According to Grant, the onshoring movement of returning outsourced manufacturing back to the US began with labor issues in China. China’s low labor costs once compelled companies to outsource production abroad. Today, wages are five times higher than they were 12 years ago, and are estimated to continue rising at 18 percent a year, according to a recent article in the Huffington Post.
Companies were also prompted to reconsider the benefits of offshoring when Chinese workers began to resist poor labor conditions in the form of strikes and suicides. The problem became serious enough for the contract electronics assembler Foxconn Technology Group to begin automating its operations in China.
The cover story in the December issue of The Atlantic, "Why The Future of Industry Is In America," reported that US manufacturing is on the edge of a major resurgence as companies bring work back from China and other foreign countries.
Automation GT’s Grant believes that operating automation abroad is no more effective than operating automation in the US, and for companies wishing to onshore production, automated robotics will play a key role. “We’ve seen a trend with companies wishing to be ‘reshored’,” Grant said in an interview. “They are not satisfied with the quality of products being produced abroad, and managing that from afar is a real challenge.”
With automation, companies are able to bring manufacturing back to the US, respond to changing market demands quicker, protect Intellectual Property, and have total quality control. “From a financial and a logistical perspective, automated production in the US just makes sense,” Grant added.
While consumer expectations for superior goods and services continues to grow, operating closer to the demand allows companies to reduce lead times, and keep up with the market’s incessantly changing demands. Automation also offers the opportunity to reposition labor to carry out different tasks.
Grant said the importance of onshoring has been acknowledged by President Obama, with his proposal of tax relief for companies that return jobs to America. Obama also alluded to end the favorable tax treatment for companies who move work overseas, which will encourage the manufacturing pendulum to swing back.
What is your viewpoint? Tell us in the comments section below.
Thanks for this Al. We live in a very dynamic ecosystem and the trend to bring manufacturing back home is the natural progression of a complex system, not the decision of an omniscient central planner. While President Obama is proposing tax relief for companies that return jobs to America in an attempt at command and control, this recent movement is returning "manufacturing" to America, but not necessarily "Jobs".Thankfully gone are the days of humans being hired to perform robotic jobs, to the increase of repetitive stress injuries and carpal tunnel syndrome, but also gone are the throngs of low- to mid-level supervisors and managers employed to insure that the workers act like robots. Supervisor jobs will now be performed by SCADA systems and Management decisions will be made by Business Intelligence applications.
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Al, great article. It brings together a number of current trends we have been seeing. I have mentioned in a number of comments some examples of these trends. The reasons are, as you point out, being close to markets to be able to respond and quality.
Frankly, while I have tremendous respect for the Chinese and China, they have not been a manufacturing powerhouse for a very long period of time. While we have a resurgence in China's engagement with the world. whcih is a very good thing, this is a recent phenomenon. I know people who are my age whose education and carreer was interrupted by the cultural revolution. Frankly, we sent a lot of low value manufacturing to China (and elsewhere) and it was poorly done. This is another reason for the movement to quality manufacturing in the US. China can do better, but it's real need is to produce products for their own population. That would have a much more positive effect on the whole situation than doing low end manufacturing.
The trend toward automating manufacturing in China can be a disturbing one. China still has lots of people who live on very small incomes. For a smooth transition to a more open society and economy, China needs to be able to fulfill these needs at home. As they have shown around the world, Chinese entrepreneurs, engineers and scientists can hold their own and thrive in an open environment.
Thanks so much for writing this, Al. I wasn't aware of this trend but it makes complete sense and can only be a good thing for the American economy and for onshore business in general. It also should bolster the adoption in the U.S. of automation technologies that are becoming more innovative by the day.
Elizabeth, I think many of us are hopeful this will be a significant trend but the jury may still be out. It's hard to quantify how much real momentum there is?
Al, I've read some recent discussions of the onshoring trend that say, well, that it's not really clear yet that it *is* a trend. I can't provide any links, but I was reading some articles last week. Apparently, there's some disagreement about how the trend, of there is one, is being measured. Are you aware of the observable phenomena are being measured and can you shed any light on the controversy?
AI, after the announcements of Google for a Made in US product last year, Apple also announces similar decision to shift/focus their production facility to US. These announcements from corporate giants had waved a desi (locally made) movement/feelings with almost all companies and I think based on success rate more companies may shift their operation to US.
AI, still I feels that wages in china is cheaper or attractive than any other companies. I agree that their wage structure had five fold doubled during last 12 year and increasing at the rate of 12% annually. But one fact is Chinese employs will put more effort in production line than anyone else. I mean they are ready to work for more hours (10-12 hours) with the same salary.
Just wait until Obamacare smacks companies. The idea of 'tax' incentives distorts the market and with the current political climate, I can understand the hestitant CEO's. But at least they are giving lip service. In the end, it is about profits and making money. It does not matter if it is the 'evil' corporation or the individual worker, we all want to get ahead and make a little more. If "made in the USA" means better profits (whether it is reduced shipping costs or lower quality costs) then those jobs will be sourced in the US.
I think in some related articles, the need for skilled labor is one possible stumbling block. So real education (and not the go to college just to say you went to college) will be a priority. That means technical colleges, trade schools, internships, as well as traditional colleges need to be affordable (but not just giving them free money by loading students with debt)!
Agree with many comments here. Our best foot forward is to approach the problem with a combination of changes which make the U.S. more attractive. We do have an inherent advantage with shipping costs (with our consumer base) and hopefully energy costs will become an asset. But there is still much to overcome.
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