Two observations about human nature: We move in herds. And we very quickly forget what the last pasture was like.
Back in the late 1960s and early '70s, "Japan Inc." was poised to destroy American manufacturing. Flush with dollars amassed from churning out cheap goods for U.S. consumers, Japanese tycoons weren't just financing our debt, they were buying up real estate - threatening, literally, to own the country.
That dire scenario, of course, never came to pass. But when Japan sank into decades of deflation, yet another crisis emerged, in the form of the Asian "tigers" - Hong Kong, Singapore, Taiwan and South Korea. These aggressively developing economies became the go-to region for low-cost Western consumer goods ... until they weren't.
They were followed, of course, by China, the latest challenge to American economic hegemony. When a good portion of U.S. manufacturing capacity decamped for China's burgeoning Guangdong Province, we heard the same laments - only louder this time - about the end of the American century. To be sure, they seemed justified at the time. China's inexhaustible labor force and huge investments in infrastructure looked certain to propel the nation to global dominance. Just two years ago, China passed Japan to become the world's second-largest economy. The Middle Kingdom was on a roll.
China remains a force to be reckoned with, but its economy has faltered over the past couple of years. Rising labor rates are making it a less attractive place for manufacturing, at least where exports to the West are concerned.
Some of that activity is even returning to the U.S. A recent report by Acorn Systems, a vendor of cost-management software, found that 28 percent of its U.S. manufacturing customers had "reshored" at least a portion of their sourcing, saving an average of $23m a year in the process.
Yes, China took a huge bite out of the U.S. manufacturing base. And yes, it still makes most of the personal electronic devices that we treasure. But at least one analyst believes that China was never the threat to the American economy that it appeared to be, even back in 2001, when it joined the World Trade Organization and manufacturing wages were 58 cents an hour.
China mapped out a brilliant strategy, creating industry clusters in key cities that included training facilities for workers, universities for engineers and the infrastructure needed to move product to market. The nation "made sure manufacturers had everything they needed to succeed," said Hal Sirkin, senior partner and managing director in Chicago for the Boston Consulting Group.
Was Western industry crushed? Hardly. "Contrary to conventional wisdom, this did not wipe out the U.S. manufacturing base," Sirkin said at the Supply Chain Council's Executive Summit in Indian Wells, Calif. In fact, he noted, 75 percent of what Americans consume is still produced domestically. The number is far lower for certain industries like apparel and footwear, but for the most part U.S. manufacturing is staying alive.
Add to that the challenges that Chinese industry is facing now, including a 14-percent increase in wages since 2001. (That's an average; some companies have experienced increases of 50 percent in a single year.) At the same time, workers are either rioting or refusing to return to the factories after visiting their families in the countryside during Chinese New Year.
Chinese productivity has been rising by around 7 percent a year, said Sirkin, but has recently been "swamped by wage increases," which are likely to continue. American workers, meanwhile, are on average 3.4 times more productive than their Chinese counterparts. By 2015, U.S. manufacturing is expected to cost about the same as making goods in China, when elements such as transportation and concerns over intellectual property are factored in.
Don't expect goods with a high degree of labor content to come rushing back to the U.S., Sirkin said. But those that require more moderate labor expense - say, 25 percent of total cost - are good candidates for reshoring.
Within the next three to four years, Sirkin expects to see a "tipping point" that will trigger a substantial shift in seven industries: computers and electronics, appliances, transportation goods, plastic and rubber, machinery, furniture and metals. Together those sectors account for two-thirds of what the U.S. imports from China in terms of value.
In some areas, things are moving even faster than that. "Many companies have decided that it makes sense to insource now," Sirkin said, claiming that even European and Japanese businesses are moving production to the U.S., for goods to be consumed here. Siemens and Toyota are just two examples.
Is Sirkin overselling his point? Perhaps. But even he admits that his vision of the future isn't a sure thing. Next, I'll discuss some of the specific actions that the U.S. needs to take, in order to make the dream of American industrial "recovery" a reality.
* * *
On another topic, I can't help mentioning that the Council of Supply Chain Management Professionals experienced its own logistical crisis earlier this month, at the group's annual conference in Atlanta. It seems that the customary giveaway brief bags got stuck on a ship coming from Asia, and weren't on site at the start of the event. Disappointed logisticians were given plastic bags containing the conference materials, and promised the real thing the following day. When I left three days later, the bags were still nowhere in sight. CSCMP, I can imagine, was highly motivated to get its hands on the tardy merchandise and pass it out to attendees. The prospect of having to ship several thousand bags back to its Lombard, Ill. headquarters was unpleasant, at best. As any logistics manager will tell you, overstock kills.
- Robert J. Bowman, SupplyChainBrain
Comment on This Article
Monday, 15-10-12 10:53
Excellent perspective and certainly a positive note that I offer is worth expanding to a full article(?). Thank you.
Also, re: "On another topic." Yes, "stuff happens." In the world of movement of goods, delays and glitches are not unforeseen events typically they are part of the planning and what-if calculus. For the self-professed leader in our industry this is, ahem, an embarrassment. Could there be a lesson here, viz., do what you know how to do best; outsource the rest, eg., cross-border movement of goods.