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.
This may be a boon for scientists, engineers, and skilled technicians, but a reopened factory that used to employ thousands will now employ hundreds, or increasingly dozens...
WW - Those are valid points, although a bit of a wet blanket on good news. It is absolutely true that US (and European) wage standards will not support those low skill/low wage manufacturing jobs (mostly assembly). Luckily, assembly can be automated for a lot of products and I think companies are realizing that the cost of automation, including the reduced number of higher skill/higher wage labor, is still better in the long run than having the work done offshore far away from the target market.
Another benefit of reshoring, that should include jobs, will come from just having the work done here in the US. Innovation happens more where the manufacturing is happening and design is closer coupled to production, and innovation helps drive the jobs economy as new products create need for more resources.
I believe it is also true that there will always be a need for low skill/low wage manufacturing jobs to be done somewhere, but typically for products that cannot command a premium price. Those jobs are gone from the US forever, or until worldwide wages reach some semblance of parity. In other words, not in our lifetime.
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.
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?
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.
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.
It's nice tobuild factories in the U.S.A., nevertheless without people to build subsystems, such as computer systems and elevators, it would seem hard to maintain a larger industrial base.
And our lack of public transportation forcing people to drive to work forces up wages. At least the robots mean fewer people need to drive to work.
Without an overall industrial policy we cannot move forward. Does more industry mean more trucks and more congestion? What do we want to do with railroads?
Are we developing new machinery rapidly enough?
What about an executive class not financially oriented? Is GM a car company or a financial company?
It's too easy just to say build factories. We are at least 50 years beyond the ability to have industry grow just anyway the wind blows.
Even where industry will be located has changed: imigrants went to many marginal places no longer attractive to new generations. Too many peole thnk that an area once full of industry is an automatic restoration.
And cities like Philadelphia, once the largest manufacturing area, is full of service businesses with expensive labor. New York City is the same way. Yet these were the places with public transportation for accomodating a lower cost workforce.
And what do we do with the people not skilled enough to compete for the limited industrial jobs?
My first steps to industrialization involve fundrasing for internships for people who crank wrenches working with racing teams and helping the high school shop departments. And if anyone wants to form a fund to invest in Western Pennsylvania where natural gas is abundent let me know.
I'm also looking into starting a Super Pak to push for industrial development.
Industry is engineering and engineering means industy.
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?
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.
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.
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.
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?
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.
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