The Electronics Source Book
Jun 15, 2005
What’s left of U.S.-based manufacturing?
The past few years have seen a major exodus of U.S.-based manufacturing. The trend has accelerated over the last two years. Now that a large portion of electronic products is produced in China and Mexico, what’s left in the United States, and why is it still here? Turns out, there is a lot of electronics manufacturing that is not likely to leave our shores. Meanwhile, the smart work of design is starting to leave our shores.
Gotham Consulting Partners, a consulting firm that focuses on manufacturing, has studied the U.S.-based manufacturing industry and found that the notion that manufacturing now plays a diminished role in supplying products and goods is greatly exaggerated. While many U.S. jobs have been lost to outsourced manufacturing, there is a significant portion of electronics manufacturing that remains in the United States and most of that manufacturing is not likely to leave.
Since 2001, the United States has lost more than 2 million manufacturing jobs. While some of that loss can be attributed to outsourcing, much of it comes from the domestic expansion of automated systems for producing goods. A good part of that job loss is also due to increased imports and decreased exports as consumers switch to low-cost goods produced by overseas manufacturers.
Of the current 14.5 million manufacturing jobs in the United States, Gotham notes that 3.3 million of those jobs – some 23 percent of total manufacturing jobs in the United States – are in “low vulnerability” segments. These are sectors that are not likely to experience erosion from imports or outsourcing. Another 9.8 million – or 67 percent of manufacturing jobs – are in segments characterized by medium vulnerability to loss due to overseas competitive pressure. That leaves only 1.4 million jobs that are highly susceptible to loss due to overseas competition.
The manufacturing jobs that remain in the United States are those where the product is highly complex and produced in low quantities. These tend to be higher-priced electronic goods such as medical equipment, military electronics and high-end consumer products. Consumer electronics producers may outsource the design and manufacturing of their low-end products, but the manufacturing of high-end innovative goods tends to stay in the United States. The same is true for heavy products. With rising energy and transportation costs, producers of refrigerators are not likely to ship their manufacturing overseas.
A new book by Douglas Brown and Scott Wilson, The Black Book of Outsourcing (Wiley, 2005), notes that rising costs in countries such as India and China – along with the headaches of managing a manufacturing operation half a world away – are causing U.S.-based manufacturers to reconsider sending their manufacturing to Asia.
Brown and Wilson see outsourcing as part of a predictable economic cycle. When costs are lower in one area of the world, the business flows in that direction. Over time, however, those costs rise and the rates in the original manufacturing region decrease to meet the foreign competition. Eventually, the playing field becomes even and manufacturing that is closer to the consumer becomes preferable.
Given this macro view, eventually goods will be produced close to their consumption. You can expect that over time, manufacturing for the U.S. market will drift back to the United States. Likewise, as Asian countries build a large middle class, the Asian manufacturing that now suppliers U.S. consumers will begin to supply the growing body of Asian consumers.
The exception to this will probably be the information-based workers. Design engineers who spend their days in front of a computer can do their jobs from anywhere. As Asia and Mexico continue to graduate more engineers than the United States, they will attract more of the design work. Already companies such as Microsoft and General Electric are hiring thousands of engineers Guadalajara and Beijing. This phenomenon has as much to do with the dwindling numbers of U.S.-based engineers as it does with the low cost of engineers outside the United States.
We’re about to see a day when U.S.-based manufacturing begins to grow and innovation shifts outside our borders. In the past, those foreign-born engineers came to our shores and applied for citizenship. Now they’re saving themselves the trouble of emigrating. They’re staying at home to work for Microsoft or GE.
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