After decades of outsourcing, manufacturing jobs coming home to US

(…..) So what’s behind this strange counterintuitive trend? For some economists, this represents the start of “third industrial revolution,” the dawn of the new high-tech, value-added era of manufacturing that follows the first two global revolutions: England in mid-1800s, and the one sparked by Ford’s mass production innovations in 1920s in Detroit. “The factory of the past was based on cranking out zillions of identical products,” writes The Economist in a special report on new trend published in April. “Now a product can be made on a computer and ‘printed’ on a 3D printer, which creates a solid object by building up successive layers of material.… cost of producing much smaller batches of a wider variety, with each product tailored precisely to each customer’s whims, is falling.”

Manufacturers have discovered the value of bringing production closer to the point of sale, where their employees can engage more directly with customers and adapt quickly to changes in the market. And for all the changes in the global economy, the point of sale, by and large, will still tend to be in the world’s largest consumer economy. For America, this could be the start of something good, according to the Boston Consulting Group. In 2011, BCG reported that, due to a number of changing economic realities, including rising salaries, economic expectations among Chinese workers, new labor, environmental and safety regulations abroad, the higher cost of energy required to ship products halfway around the world, and the US market and the uncertainties of political risk in these places, the cost benefits of producing in Asia no longer automatically outweigh the risks. Indeed, the BCG report predicts a “renaissance for US manufacturing” citing the fact that labor costs in United States and China are expected to converge around 2015. “Executives who are planning a new factory in China to make exports for sale in the US should take a hard look at the total costs,” says BCG’s Harold L. Sirkin, an author of the report. “They’re increasingly likely to get a good wage deal and substantial incentives in the US so the cost advantage of China might not be large enough to bother and that’s before taking into account the added expense, time, and complexity of logistics”. Skeptics continue to question whether this is sustainable. Not in the political realm, of course; it is anathema for any politician to suggest that America should content itself to life as a “post-industrial society,” in part because so few can explain how to employ 300 million people in such a place. “Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech,” writes Robert Reich, University of California at Berkeley professor who served as Bill Clinton’s labor secretary. “Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for majority of Americans who lack four-year college degrees.”

BCG, which launched a cottage industry with its 2011 report on manufacturing, believes this line of argument misses the changes underway in global economy. On April 20 its economists released a survey of the largest American manufacturing firms. The results: one third of all US manufacturing executives of companies with sales above $1 billion per year now say they are planning or considering “reshoring”; in effect, bringing home manufacturing plants that were sent to China and other low labor cost countries during the 1990s and first decade of this century. Top factors for bringing these jobs home cited by these executives surveyed by BCG: Higher labor costs in Asia (57%), ease of doing business (29%), and proximity to customers (28%). For the American worker, this will be rare good news. But the jobs that are returning will look nothing like those that left. Rote assembly lines, low value-added manufacturing like textiles, furniture and heavy smelting operations like the steel industry may never again be profitable in the way they were after World War II, when the US economy was the last bastion of capitalism not destroyed by war. But history shows that workers adapt to change when the incentives are present. Displaced hunters became farmers; displaced farmers became artisans; displaced artisans learned skills of the factory; and displaced factory workers can learn the techniques of the 21st century.



Acerca de ignaciocovelo
Consultor Internacional

One Response to After decades of outsourcing, manufacturing jobs coming home to US

  1. After a long and exhausting negotiation process, China joined the World Trade Organization ↑ (WTO) in 2001. Its accession implied the acceptance of different treaties regulating tariffs, services, and intellectual property rights. The latter agreement, referred to as TRIPS (Trade Related Aspect of Intellectual Property Rights ↑ ) established a harmonization of the patent system across the globe requiring all member states to adopt a stronger regime for the enforcement of intellectual property rights (IPRs). It was strongly pushed forward by a handful of large US multinational companies, supported by European and Japanese ones, in order to extend the patent regime in force in rich countries to all signatory states. A number of aspects of TRIPS were severely criticized at that time. Some scholars claimed that the US and its multinational companies, whose comparative advantage depended on advanced technology, would be the main beneficiaries. TRIPS would have paved the way for multinational corporations of rich countries to extend the coverage of their vast patent portfolios to the developing world. As a result, the rise of a sharp dualism within emerging markets was predicted, with foreign advanced companies monopolizing hi-tech sectors, leaving domestic firms with the low-tech slice of the cake and therefore unable to imitate advanced technology. In other words, the acceptance of the western patent system by developing countries would have triggered an increase in the polarization in the international division of labour, with companies in developing countries stuck with low-productive industries and only limited possibilities for development through the use of advanced technology. Now, ten years after the agreement entered into force, it is time to take stock and assess whether TRIPS did indeed have the predicted implications. In retrospect, who gained and who lost from the implementation of the agreement? Let’s start by considering the effects on western citizens. Substantial tariff reductions, the dismantling of most nontariff barriers, as well as the gradual elimination of quotas on textiles and apparel following the WTO accession increased China’s presence in western markets. The share of advanced country imports accounted for by China has risen significantly, with particularly sharp increases in Japan, the United States, and the European Union, thereby allowing their citizens to benefit from cheap imported goods. However, this came with costs in terms of unemployment, the main culprit being offshoring (…..)


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