Back to the future
OPR's Doug Ramsdale says it's time for a resurgence in US manufacturing
I was walking through one of the big discount stores the other day and two almost identical items caught my eye. One was the 'store brand' product, the other bore a famous brand name.
The brand name item was $4 more expensive. But here's the rub. The store brand was marked 'Made in China'. The famous brand was marked 'Carefully manufactured in China to the exacting specifications of Famous Brand'.
I chuckled. It reminded me of the comment made by a NASA spokesman when we first learned that Russia had put the first man into space: "I guess their German engineers are better than our German engineers!" he said. Tongue in cheek it may have been, but do we really believe that a few carefully chosen words on a retail package can reinforce a brand or justify a premium price?
I'll say clearly that I believe many, if not most, products made in China offer exceptional value and quality and the West's relationship with China as a source for lower cost manufacturing is the single biggest reason behind the remarkable (until recently) increases in purchasing power and living standards in many western countries. China has benefited massively also as western demand has soaked up its industrial capacity, in particular its huge labour supply.
But there is a dark side. The transfer of production to China and other low-cost Asian countries has brought a shift in the fundamental economic model of the United States and others. It has taken a generation, but we now see what looks like a 'post-industrial' economy in many countries. When a product is moved to China, it's not just the manufacturing process that leaves. Also impacted is the network of suppliers and manufacturing support services.
Over time, it is Chinese manufacturers who develop new materials, locate new suppliers, and develop new and better manufacturing processes. Tooling is produced to operate on local equipment, very often manufactured and maintained locally. A virtuous cycle of growth and wealth creation ensues. As a result, many of the decisions to transfer production are today virtually irreversible as the reverse process takes hold in America and elsewhere.
Maybe that's not a bad thing. We can look to the recent past and booming western economies, rising living standards, and the unparalleled expansion of globalisation. Many good things can be traced back to those millions of individual decisions made against the backdrop of enthusiastic western consumption and even more enthusiastic Chinese manufacturers.
But closer examination reveals a changing picture. In transferring production, we have transferred one of the major creators of wealth. We have transformed our societies into transaction specialists, who provide for themselves by moving things around, arranging changes of ownership, or providing services to the movers and changers.
Not entirely of course. Efficient freight and transportation have brought huge economic and social plusses. New retail concepts have lowered costs and expanded assortments bringing better choices to customers. But as we struggle with this recession, it is becoming clear that a future based on moving and changing is not going to provide the sustainable wealth creation that is going to be needed.
There is a precedent. In the 19th Century, up to the civil war, Americans preferred the lower cost goods manufactured in Europe, particularly Great Britain. With immigration however, came a supply of educated and talented engineers, not just the huddled masses, who brought the know-how and creativity to the country that fueled the greatest ever surge in prosperity, transforming a farm economy into a global superpower in two generations. The decisions were taken not by government but by businesses and individuals who saw that it made sense and that it would build wealth.
What should businesses and individuals do today? A good first step should be to review product strategy and decide if mastering the means of production and supply is a core ingredient in creating value. We live in an age when we can see limits to most things. Do we really believe it makes sense to transport many types of products across thousands of miles of ocean? Is it a good use of capital to invest in higher levels of inventory? Could that money be used for product development or new tools and machines?
Should we leave design, quality, functionality, safety, social responsibility - all the humming music of manufacturing - to strangers in strange places? In many cases, the right answer is yes! But in many it will be an emphatic "no"!
I'm reminded of an experience I had a decade ago when visiting Europe looking for suppliers. My search came down to two choices. One firm invested in engineering; it had installed complicated and expensive equipment and skilled people to operate it. It designed and patented its own products.
The other focused on the simple things. It outsourced the more difficult work - easier and cheaper. It employed unskilled workers in assembly tasks - no investment needed. No prize for which one I chose...
Today it's easy to see the result. One is growing into the primary manufacturer of its products in the world. The other has been through a string of management changes and was purchased 'on the cheap' by a foreign competitor! Its brands have been eclipsed.
C'mon America, it's time to start making stuff again!
OPR's Doug Ramsdale says it's time for a resurgence in US manufacturing
I was walking through one of the big discount stores the other day and two almost identical items caught my eye. One was the 'store brand' product, the other bore a famous brand name.
The brand name item was $4 more expensive. But here's the rub. The store brand was marked 'Made in China'. The famous brand was marked 'Carefully manufactured in China to the exacting specifications of Famous Brand'.
I chuckled. It reminded me of the comment made by a NASA spokesman when we first learned that Russia had put the first man into space: "I guess their German engineers are better than our German engineers!" he said. Tongue in cheek it may have been, but do we really believe that a few carefully chosen words on a retail package can reinforce a brand or justify a premium price?
I'll say clearly that I believe many, if not most, products made in China offer exceptional value and quality and the West's relationship with China as a source for lower cost manufacturing is the single biggest reason behind the remarkable (until recently) increases in purchasing power and living standards in many western countries. China has benefited massively also as western demand has soaked up its industrial capacity, in particular its huge labour supply.
But there is a dark side. The transfer of production to China and other low-cost Asian countries has brought a shift in the fundamental economic model of the United States and others. It has taken a generation, but we now see what looks like a 'post-industrial' economy in many countries. When a product is moved to China, it's not just the manufacturing process that leaves. Also impacted is the network of suppliers and manufacturing support services.
Over time, it is Chinese manufacturers who develop new materials, locate new suppliers, and develop new and better manufacturing processes. Tooling is produced to operate on local equipment, very often manufactured and maintained locally. A virtuous cycle of growth and wealth creation ensues. As a result, many of the decisions to transfer production are today virtually irreversible as the reverse process takes hold in America and elsewhere.
Maybe that's not a bad thing. We can look to the recent past and booming western economies, rising living standards, and the unparalleled expansion of globalisation. Many good things can be traced back to those millions of individual decisions made against the backdrop of enthusiastic western consumption and even more enthusiastic Chinese manufacturers.
But closer examination reveals a changing picture. In transferring production, we have transferred one of the major creators of wealth. We have transformed our societies into transaction specialists, who provide for themselves by moving things around, arranging changes of ownership, or providing services to the movers and changers.
Not entirely of course. Efficient freight and transportation have brought huge economic and social plusses. New retail concepts have lowered costs and expanded assortments bringing better choices to customers. But as we struggle with this recession, it is becoming clear that a future based on moving and changing is not going to provide the sustainable wealth creation that is going to be needed.
There is a precedent. In the 19th Century, up to the civil war, Americans preferred the lower cost goods manufactured in Europe, particularly Great Britain. With immigration however, came a supply of educated and talented engineers, not just the huddled masses, who brought the know-how and creativity to the country that fueled the greatest ever surge in prosperity, transforming a farm economy into a global superpower in two generations. The decisions were taken not by government but by businesses and individuals who saw that it made sense and that it would build wealth.
What should businesses and individuals do today? A good first step should be to review product strategy and decide if mastering the means of production and supply is a core ingredient in creating value. We live in an age when we can see limits to most things. Do we really believe it makes sense to transport many types of products across thousands of miles of ocean? Is it a good use of capital to invest in higher levels of inventory? Could that money be used for product development or new tools and machines?
Should we leave design, quality, functionality, safety, social responsibility - all the humming music of manufacturing - to strangers in strange places? In many cases, the right answer is yes! But in many it will be an emphatic "no"!
I'm reminded of an experience I had a decade ago when visiting Europe looking for suppliers. My search came down to two choices. One firm invested in engineering; it had installed complicated and expensive equipment and skilled people to operate it. It designed and patented its own products.
The other focused on the simple things. It outsourced the more difficult work - easier and cheaper. It employed unskilled workers in assembly tasks - no investment needed. No prize for which one I chose...
Today it's easy to see the result. One is growing into the primary manufacturer of its products in the world. The other has been through a string of management changes and was purchased 'on the cheap' by a foreign competitor! Its brands have been eclipsed.
C'mon America, it's time to start making stuff again!
