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.
Since they hardly sell many Mac computer, the 200 or so jobs they are creating sounds more like a publicity stunt. Trying hard to not look like a labor abusing monster. But, hey, all those salaries are going to be around $8M, in the end. It's something.
Nancy, I think you hit it on the head in terms of what are the incentives? It will be interesting to see what actual incentives come forward but this is obviously an issue where the politicians are focusing. We'll have to wait and see. Could be a big story over the next few years ... or not?
Nice story, Al. The chilling phrase in there is "Chinese workers began to resist poor labor conditions in the form of strikes and suicides." I guess we've all read about the conditions at FoxConn and heard about the nets outside the compounds, but it's still scary to see it mentioned in this context. Let's hope the trend toward onshoring continues -- for everyone's sake.
That caught my attention as well, apresher. I am just wondering what their incentive is - especially since the President also announced a raise in minimum wage to nine dollars an hour. While I truly hope all of this happens - there is still the same carrot that drove these companies off-shore in the first place - the cost of producing their products have been lower outside the U.S. which speaks to higher profit margins.
From last night's State of the Union address, it's obvious that this issue is on the radar in Washington. The President mentioned Apple, along with Ford and Caterpillar, as companies bringing manufacturing back to the U.S. The President also said that "Our first priority is making America a magnet for new jobs and manufacturing." It will be interesting to see if this issue gains traction, and what proposals come forward.
Manufacturing (in general) tends to follow the lowest cost avenues. How low depends on how much work they want to put into a given project up front. First it was America, then Japan, Taiwan, and eventually found its way to China.
A very good article on the history of outsourcing is found here: https://wikis.nyu.edu/ek6/modernamerica/index.php/Industry/Outsourcing
Automation will definately improve the US's chances of successfully in-sourcing. But there will always be a need for low wage work here from the worker's position. Not everyone can be a rocket scientist, engineer, or a degree holder. There are those that need/want simple work.
Another way the US could compete USING labor would be to consider some kind of model fashioned after a program the Chinese developed out of necessity. When the planned city of Shenzhen went up starting in the mid-70's and capitalism was being experimented with, Companies had a need for labor and attracted people from all over the country with dreams of making a lot more money in the factories than they could make farming.
These people came with nothing. They arrived at the company doorsteps with a few changes of clothing.
The answer for them? Dormatories...with cooks! Provide them with a roof over their heads and 3 square meals a day and pay them a little and they were happy.
This is not necessarily the answer for finding low wage solutions in the US, but I can't help but think that something along these lines, manifested in some fashion, couldn't be a valuable solution to keeping low cost workers employed in addition to automation.
Manufacturing may be coming back, and it may mean a need for more scientists and engineers, but the H-1B visa program means companies will be importing workers to fill that need.
It's always about the bottom line - companies will take the lowest-cost path.
It would be nice if the current administration, in addition to incentives for onshoring, also did something about that damned H-1B visa program. Maybe a rule that unemployment must be below 4 percent before H-1B visas can be granted?
JimRW excellent thoughts on innovation - "happens more where the manufacturing is happening and design is closer coupled to production..."
I wasn't aiming for a "wet" blanket, but at least a "sober" blanket. Offshoring is a symptom, not the disease. If policies are successful in onshoring manufacturing, I'm suggesting that is similar to air lifting mouthwash into a country suffering from massive tooth decay. Since our economists insist on governing in an age of scarcity, it is difficult to have any leverage on consumer goods that are infinitely abundant. (as of June 2012 the US has 300,000,000 mobile phones in use, and as of 2009 more than 50% of households have 3 or more TVs). The economic solution is to enact policies that artificially create scarcity (farm subsidies, moratoriums on domestic oil production, 4 new refineries since 1990, no new nuclear plants since 1977...)
I'm anxious to hear the plans for Jobs during Today's Fat Tuesday State Of the Union Address. We want jobs? Lift the artificial scarcity and transition the country into an age of abundance.
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