Posting in Environment
Boston Consulting Group predicts US is on the verge of a 'manufacturing renaissance,' and here's why.
If you think the future of manufacturing belongs to China, India or other emerging economies with lower wages, think again. At least one analyst firm is predicting that reinvestment during the next five years could "usher in a ‘manufacturing renaissance’ as the United States becomes a low-cost country among developed nations."
This fresh thinking comes out of The Boston Consulting Group, which predicts that within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain US states become some of the cheapest locations for manufacturing in the developed world.
BCG also credits shrinking wage gaps and government incentives within the US:
"With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market."
As Harold L. Sirkin, a BCG senior partner, says he expects "net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”
Shrinking wage gaps, as described by BCG, are part of the story. There's also a technology side to the story. There are already some new concepts coming out of US shops, including "desktop manufacturing," made possible by 3D printing. If 3D printing takes hold, mass production within the US could be far cheaper than producing and shipping products from overseas.
BCG also cites examples of US companies that are rethinking their production locations and supply chains for goods destined to be sold in the United States:
Caterpillar Inc. announced last year the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company's U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.
NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs.
Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the United States.
Cheaper wages are only just part of the story, BCG adds. Skillsets also play an important role in a region's ability to support business and manufacturing. “In the U.S., we have highly skilled workers in many of our lower-cost states. By contrast, in the lower-cost regions in China it’s actually very hard to find the skilled workers you need to run an effective plant,” says BCG's Doug Hohner. Plus, there are infrastructure matters to consider. Smaller low-cost countries simply lack the supply chain, infrastructure, and labor skills to absorb all of it, Hohner says.
(Thumbnail photo: Joe McKendrick.)
May 10, 2011
The question is not simply US manufacturing vs. China manufacturing. It is important to note an additional detail. When it comes to low cost manufacturing, the two contender pools are best described as: -Low cost manufacturing in the Rural US (non-union task workers) -Low cost manufacturing in Urban China But the future landscape will be changing. As automation improves, low task worker costs will become less relevant while the information worker (say designers and engineers) becomes more important. Information workers tend to be highly educated and concentrated around cities which gives China a distinct advantage. Chinese factories can be both cost competitive and urban (or close to where knowledge workers are abundant). Unfortunately the only way a US factory can compete with China on cost, is to site itself in a low cost, rural area where education and knowledge workers are scarcer (the US has many rural factories but few have remained in the cities). The cost of task worker labor will be less of a factor as these jobs are ultimately being replaced with machinery. Thus with task workers making up a smaller proportion of production costs, task worker wages will become less and less of a factor in where a factory is built. The factory of the future will compete on it's ability to innovate quickly and will benefit from a concentration of highly skilled knowledge workers to do so. This ultimately favors the urban factory, a category where China maintains a strong lead over the US.
How can US corporations survive when the Federal Government jumps into bed with organized labor unions to dictate where Boeing can or cannot build its most competitive new aircraft plant? http://www.thenewstribune.com/2011/04/20/1634171/ruling-boeings-south-carolina.html
Rejoice the weak dollar? The US now has achieved a dubious milestone. We have the highest corporate tax rates and most antagonistic corporate tax policies in the OECD. When we double the size of government in less than 10 years and 47% of your population pays no income tax, the money has to come from somewhere. http://mercatus.org/publication/corporate-income-tax-rates-oecd
This is good news! I've said for years that the rush to offshore everything was shortsighted and over-looked many of the challenges of "developing" countries. It isn't always the cheapest wages that is the bottom line, Skilled labor, supply chains, and transport costs matter also. I believe the end of cheap petroleum and increased unrest globally is going to drive a lot more manufacturing back to North America over the next decade.
...is if the Obama Administration gets its way, the 777 will likely be the last new plane built on these shores. And every other major manufacturing concern in this country will be watching this closely as well. In the future, Boeing will probably move more towards the model that Apple has mastered so well. So interesting that this comes out right now, since it's so completely contrary to current events.
Ultimately, the Knowledge worker has to be close to the factory. So does the Management. The Financial end will also try to be close. The factory will need to be close to it's material suppliers. it 's a big interconnected web. What comes out of this Article is that the US needs to be highly automated to be competitive. Unions have traditionally fought this trend. Think of the Fireman on a Diesel Locomotive. His job is after all to throw the coal into the boiler. A union rule that kept a backup engineer on trains for over 100 years, with nothing to really do. Unions do have a place, as they are needed when Management gets abusive. But, Unions get abusive too. Unions are the reason that laws restrictive to change ("innovation") get passed. It's political leverage. If the Union movement welcomed automation, even if it means fewer jobs. At least there will be jobs. I remember living in Fort Wayne Indiana once. There an International Harvestor factory had closed after a prolonged strike. Five years later, the Union was still striking the plant. Which had been moved overseas. to keep it, the Union would have had to accept a 5% pay cut. Instead, they wound up taking a 100% pay cut. To be competitive, America needs to automate production. There are really a lot of American parts in those Chinese produced electronics, and in those Japanese cars and Indonesian appliances. Every American Farmer feeds 100 people. Every American Factory employee needs to support 20 to 50 people. This is only possible with Automation.
GWB and the GnoP exported jobs for 8 years so that large companies would be happy and keep filling campaign coffers. BTW Apple didn't make the manufacturing overseas model; many others have for a lot longer time and still do the same. The American Electronics industry in the 60's and 70's killed the American electronics parts manufacturing base (transistors, capacitors, resistors, diodes, etc.). Remember Zenith, Magnavox, RCA, GE, Sylvania, etc. they bought parts from Asia-->surprise the American parts manufacturers dried up (good paying jobs). These companies were then at the mercy of foreign parts producers, foreign parts producers that are in the backyards of Sony, Panasonic, LG, Onkyo, Samsung, etc. The US created the TV and stereo markets worldwide. Greed/lack of foresight has moved the majority of engineering and manufacturing to other countries. The American public that buys foreign branded goods is slowly selling out America. Worse yet, I see foreign branded car dealerships Toyota, BMW, Kia, etc. as making money off of selling out America; some are actually proud that they are cashing in on America's demise. There will be a point when we won't be the greatest economy on earth; and everyone that has bought a foreign branded car, washing machine, etc. has significantly contributed to the Grand Demise. I have bought 1 Vizio TV (American designed, American Company) made in Asia and the fuel I buy, of course, does not say where it came from. The next time you buy a vehicle or appliance, remember if you buy foreign (along with a few million other Americans); YOU ARE SELLING OUT YOUR COUNTRY AND YOUR CHILDREN'S FUTURE!
The BCG report was obviously paid for. This Progressive blog ran it unchallenged. So will the state media.
...who have exploited "green" for all it's worth. The millions spent on K-Street, advertising, and green propaganda on NBC (news and entertainment) have paid real dividends, literally. Unfortunately, those who have not the resources or friendly politicians in high places don't get to keep so much of their money.
But when it comes down to a car built almost 100% in a US State by US workers branded Honda or Toyota vs an "American" vehicle built almost exclusively in Mexico using Asian parts, I'm buying the Honda........
Remember Zenith, Magnavox, RCA, GE, Sylvania.. All of those manufacturers and others were driven out of business in the US by unenforced trade laws. Case in point. All TV manufacturers used to be required to maintain a parts warehouse within the USA to support repairing a product for up to 10 years after it was built. But in the 1970s the Carter administration started a tradition of granting overseas electronics manufacturers exemptions to that law. Just try to order a power supply for that $1,500 Chinese made LCD TV you bought 2 years ago. The part will cost you only $60.00, but the Chinese manufacturer hits you up for $400.00 shipping for a 10 lb part from China. US manufacturers burdened by the cost of maintaining a parts warehouse for 10 years for every line of TV???s they sold could not compete. That example is typical across the entire home electronics market.
...but they are certainly the master executioners of it. And for some strange reason, are rarely condemned for it by the progressives who seem to love their products. BTW, it was Bill Clinton who pushed for and won most-favored-trading status for China. Trying to make an argument by blaming the current state of affairs on GWB is simply partisan hackmanship.