Signs of life: 4 reasons U.S. manufacturing is making a come back


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Signs of life: 4 reasons U.S. manufacturing is making a come back

  1. SignSof life:4 reaSonS U.S.manUfactUringiS making acome backrolf e. kleiner
  2. 2 | SignS of lifeintrodUctionTightening margins, wage pressures and a culture that expects an endless supply of cheap, disposablegoods 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 theywant 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 themanufacturing and light industrial space, and have turned their focus to more ‘strategic’ pursuits.Service, innovation and strategic management rather than production of goods has increasinglybecome 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 tomanufacturing 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 industryas 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 masslayoff events decreasing steadily. And, if the issues outlined here are anything to go by, the positivesigns could well be the beginning of something bigger.
  3. 3 | SignS of lifecheap oil iS gone. We are going to ever more remote anddifficult places to find it. We’re seeing more conflict in pursuit of it, andthe 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 ofeconomy and the days of cheap, secure only compounded the upward pressure on transportation increases across the 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 advantageenergies have yet to translate into large- hit harder on the cost of production, and will not slow—and developing nations willscale affordable alternatives for business this will add to the cost of goods for the end not give up market share easily. However, iftransportation. The age of shifting goods consumer. local companies can seize on this windowcheaply has hit a snag, and it may be some of opportunity and look for ways to embedtime before a genuine solution is found, let for local manufacturing, this has a clear longer-term efficiencies in the productionalone 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 simplylogistical costs, especially for heavy pressures, both developed and developing cannot match.products, have already increased economies have to vie on the global marketexponentially, and rapid development in the for this resource. As such, local production is
  4. 4 | SignS of lifeOil production and consumptionbarrel per day, mprodUction conSUmption100 10080 8060 6040 4020 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 americaSource: BP Statistical Review, The Economist June 2011.
  5. 5 | SignS of lifelabor iS cheap, talent iS expenSive.The initial logic of cheap labor, which drove jobs offshorefor 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 developedthe world, but talent is commanding a found, they must be paid for accordingly. economies are looking increasingly attractive.premium, particularly in those emergingmarkets 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 isskill 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 toDevelopment has been swift and dramatic, manage, so the case for keeping productionparticularly 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 marketsrapid inroads to specialist education and that elsewhere, particularly in Asia wherehas captured the information technology inflation is high. With China clocking upwave with incredible speed, but in the double-figure wage growth year-on-yearmanufacturing space, skills and experience for at least the past three decades, the flat
  6. 6 | SignS of lifeyoU get what yoU pay for. It started withcheap, disposable items, but even some high-end Europeanbrands have moved their production offshore.the manufacturing clout of countries revolution, consumers are less naïve about particularly in China, have also added a newlike china has seemed almost quality standards. The unfortunate truth is, sense of distrust and fear about some aspectsunchallengeable—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 innew 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 wanthave 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 thatconsumers are beginning to think harder can be fixed if they break—and theseabout an initially attractive purchase price: The prices that retailers can command for features are again differentiating factors forwhile a good may be cheap, it may not be goods that are made in some emerging locally made products. In a tight consumerwell made, and having to replace this item economies bring with them the perception of market, it’s differentiation and trust in amultiple times ultimately adds to the long- poor quality (which may nor may not be true). brand that might just get more peopleterm 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 lifeSafety and SecUrity. Working and operatingin emerging markets can have cost advantages, but withthem come other risks, including the difficulty of negotiatingscant and poorly regulated industrial frameworks.Social unrest, bureaucratic and physical this is not to say that anywhere is entirely risk is something every company hasdisruptions, as well as weak or non-existent free of corruption or hidden costs, but it’s to manage. But, as the risks of doinglegislative protection from practices such as certainly true that corruption is endemic in business in some markets becomepiracy, can all be major barriers to business some markets, and that this raises the risk real, local manufacturing can againin developing economies. However, just profile for business exponentially. When look ‘easy’, ‘safe’ and perhaps lessas 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 ofBribery and corruption can significantly production, but also the potential cost ofimpair the ability of companies to grow and losses to brand reputation and intellectualbuild a reliable supply chain in an emerging property. If IP is not secure, or manymarket, 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 lifeconclUSion. The signs of life in the US light industrialsector 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 goodindustry that are outlined here can be traced in this global climate easily. innovation is news is, the expertise is right on ourback to broader, global trends—they have strongest in hard times, and if anything, doorstep. We know how to managenothing to do with one country or one competition will force us all to work harder change, how to source talent and how toindustry. 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 USa 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 captureis going to take some new thinking. Many organizations now know that working the opportunity while it lasts? smarter and more efficiently locally canJust because some emerging markets are be just as effective as sourcing cheaperbecoming less attractive/cost-effective labor elsewhere. And yes, it takes a lotdoesn’t mean that all competition is off. No of expertise to improve efficiency—and
  9. aboUt the aUthorRolf E. KlEinER is SVP and Chief innovation officer at Kelly Services.A veteran outsourcing professional, he is responsible for creating a newfoundation of workforce solutions for the evolving workplace. named to hiscurrent position in 2012, Mr. Kleiner previously served as SVP and GeneralManager of KellyoCG. Prior to joining Kelly, he had 19 years of experiencein 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 naturalSciences’ Water Resources and Water Pollution Control Department at the Swiss federal institute ofTechnology in Zürich, Switzerland.aboUt kellyKelly 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-classstaffing 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 and connect with us on Facebook, LinkedIn, & Twitter. EXIT