Signs of life: 4 reasons U.S. manufacturing is making a come back
- 1. SignS of life: 4 reaSonS U.S. manUfactUring iS making a come back rolf e. kleiner
- 2. 2 | SignS of life introdUction Tightening margins, wage pressures and a culture that expects an endless supply of cheap, disposable goods have spelt the decline of light industry and manufacturing in many developed economies. Commoditization has left us with a price-led consumer market—people want things cheap and they want them fast. And developing economies have fulfilled this wishlist for some time now. Increasingly, developed economies have accepted their inability to compete on cost in the manufacturing and light industrial space, and have turned their focus to more ‘strategic’ pursuits. Service, innovation and strategic management rather than production of goods has increasingly become the focus of companies with their roots in developed economies. But are signs emerging that the pendulum is now swinging back the other way? In the US at least, new ways to compete in this space are being found, and the value of a first-world approach to manufacturing is again being realized. Amid the doom and gloom of the American economy, the light industrial space is a rare positive note. The US Bureau of Labor Statistics shows the unemployment rate across the manufacturing industry as a whole dropping back to around 9% at the end of 2011, from a high of more than 12% in 2009. Throughout 2011, the statistics have been improving month-on-month, with both separations and mass layoff events decreasing steadily. And, if the issues outlined here are anything to go by, the positive signs could well be the beginning of something bigger.
- 3. 3 | SignS of life cheap oil iS gone. We are going to ever more remote and difficult places to find it. We’re seeing more conflict in pursuit of it, and the environmental cost of it is now at the forefront of our minds. oil (quite literally) fuels the global world’s two most populous countries have set to gain the upper hand as the price tag of economy and the days of cheap, secure only compounded the upward pressure on transportation increases across the board. supplies are over. The problem is, concept oil prices. At least in the short- to medium- cars and ships powered by renewable term, the cost of transportation is going to the race to gain a competitive advantage energies have yet to translate into large- hit harder on the cost of production, and will not slow—and developing nations will scale affordable alternatives for business this will add to the cost of goods for the end not give up market share easily. However, if transportation. The age of shifting goods consumer. local companies can seize on this window cheaply has hit a snag, and it may be some of opportunity and look for ways to embed time before a genuine solution is found, let for local manufacturing, this has a clear longer-term efficiencies in the production alone implemented. positive aspect. Oil is expensive for everyone process, they might just secure a market and thanks to ongoing supply and demand advantage that far-flung suppliers simply logistical costs, especially for heavy pressures, both developed and developing cannot match. products, have already increased economies have to vie on the global market exponentially, and rapid development in the for this resource. As such, local production is
- 4. 4 | SignS of life Oil production and consumption barrel per day, m prodUction conSUmption 100 100 80 80 60 60 40 40 20 20 0 0 1971 75 80 85 90 95 2000 05 10 1971 75 80 85 90 95 2000 05 10 middle eaSt eUrope north america aSia pacific africa SoUth and central america Source: BP Statistical Review, The Economist June 2011.
- 5. 5 | SignS of life labor iS cheap, talent iS expenSive. The initial logic of cheap labor, which drove jobs offshore for the past two decades, has begun to weaken. labor is still cheap in some parts of are still hard to find. And when they are labor costs in the US and other developed the world, but talent is commanding a found, they must be paid for accordingly. economies are looking increasingly attractive. premium, particularly in those emerging markets where large, complex operations experienced managers in emerging The larger pool of experienced, well- now require high-level management markets command relatively high salaries, educated talent in developed markets is skill to lead their operations. and in some cases are in excess of the cost again looking like good value. And for of those skills in developed markets. now at least, managers need teams to Development has been swift and dramatic, manage, so the case for keeping production particularly in China and India, but skill across the board, wage costs are rising on home soil is again a viable option. gaps are harder to close. India has made higher and faster in emerging markets rapid inroads to specialist education and that elsewhere, particularly in Asia where has captured the information technology inflation is high. With China clocking up wave with incredible speed, but in the double-figure wage growth year-on-year manufacturing space, skills and experience for at least the past three decades, the flat
- 6. 6 | SignS of life yoU get what yoU pay for. It started with cheap, disposable items, but even some high-end European brands have moved their production offshore. the manufacturing clout of countries revolution, consumers are less naïve about particularly in China, have also added a new like china has seemed almost quality standards. The unfortunate truth is, sense of distrust and fear about some aspects unchallengeable—they can (and do) often, you really do get what you pay for. of goods produced in less regulated markets. make anything and everything. However, the short-term satisfaction of a shiny a return to a quality over cost trust in the quality of goods produced in new item has begun to wear thin for priority is beginning to take shape some emerging markets has been eroded, some consumers as quality standards in developed economies and this is and more than anything, consumers want have failed to meet expectations. creating a new window of opportunity for products they can trust and rely upon. manufacturing in countries like the US. They want products that will last and that consumers are beginning to think harder can be fixed if they break—and these about an initially attractive purchase price: The prices that retailers can command for features are again differentiating factors for while a good may be cheap, it may not be goods that are made in some emerging locally made products. In a tight consumer well made, and having to replace this item economies bring with them the perception of market, it’s differentiation and trust in a multiple times ultimately adds to the long- poor quality (which may nor may not be true). brand that might just get more people term cost. Thanks to the offshore production And, some high-profile cases of safety issues, to part with their hard-earned wage.
- 7. 7 | SignS of life Safety and SecUrity. Working and operating in emerging markets can have cost advantages, but with them come other risks, including the difficulty of negotiating scant and poorly regulated industrial frameworks. Social unrest, bureaucratic and physical this is not to say that anywhere is entirely risk is something every company has disruptions, as well as weak or non-existent free of corruption or hidden costs, but it’s to manage. But, as the risks of doing legislative protection from practices such as certainly true that corruption is endemic in business in some markets become piracy, can all be major barriers to business some markets, and that this raises the risk real, local manufacturing can again in developing economies. However, just profile for business exponentially. When look ‘easy’, ‘safe’ and perhaps less as critical as these is a general lack of faith operating in these markets, companies cost-prohibitive than first thought. and trust in the business environment. need not only consider the actual cost of Bribery and corruption can significantly production, but also the potential cost of impair the ability of companies to grow and losses to brand reputation and intellectual build a reliable supply chain in an emerging property. If IP is not secure, or many market, and these issues often create a unofficial taxes and fees are required on ‘hidden’ cost to operating offshore. an ongoing basis, the cost advantages of cheap labor can quickly erode.
- 8. 8 | SignS of life conclUSion. The signs of life in the US light industrial sector may be small, but they should not be overlooked. The four indicators of change across the business is going to give up market share to do so over the long term. the good industry that are outlined here can be traced in this global climate easily. innovation is news is, the expertise is right on our back to broader, global trends—they have strongest in hard times, and if anything, doorstep. We know how to manage nothing to do with one country or one competition will force us all to work harder change, how to source talent and how to industry. But, when put together, they are to get where we want to be. But there’s no increase efficiencies organization-wide. providing fuel for what could well become denying these four trends provide the US a job repatriation trend in north america. with the kind of advantage it needs right now. the only question that remains is, Capturing and sustaining this trend, however, will we move fast enough to capture is going to take some new thinking. Many organizations now know that working the opportunity while it lasts? smarter and more efficiently locally can Just because some emerging markets are be just as effective as sourcing cheaper becoming less attractive/cost-effective labor elsewhere. And yes, it takes a lot doesn’t mean that all competition is off. No of expertise to improve efficiency—and
- 9. aboUt the aUthor Rolf E. KlEinER is SVP and Chief innovation officer at Kelly Services. A veteran outsourcing professional, he is responsible for creating a new foundation of workforce solutions for the evolving workplace. named to his current position in 2012, Mr. Kleiner previously served as SVP and General Manager of KellyoCG. Prior to joining Kelly, he had 19 years of experience in providing innovative products and services to the scientific community. Rolf holds a bachelor’s and master’s degree in natural sciences from the Department of natural Sciences’ Water Resources and Water Pollution Control Department at the Swiss federal institute of Technology in Zürich, Switzerland. aboUt kelly Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a leader in providing workforce solutions. Kelly® offers a comprehensive array of outsourcing and consulting services as well as world-class staffing on a temporary, temporary-to-hire and direct-hire basis. Serving clients around the globe, Kelly provides employment to more than 550,000 employees annually. Revenue in 2011 was $5.6 billion. Visit www.kellyservices.com and connect with us on Facebook, LinkedIn, & Twitter. EXIT