The consulting firm Kearney updates their numbers on the foreign sourcing and US manufacturing of products. Â Lots of interesting data.
32 thoughts on “Reshoring”
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Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
The consulting firm Kearney updates their numbers on the foreign sourcing and US manufacturing of products. Â Lots of interesting data.
Comments are closed.
Thanks for the link to that Kearny report, David. As the saying goes, read it and weep.
It seems Kearny’s major conclusions are:
a. Much of the reputed shift of imports from China to Vietnam is a clever ploy by the Chinese to get round US restrictions by routing & repackaging their exports through Vietnam.
b. Many US importers have switched from relying on Communist China to relying on narco-state Mexico. One wonders if that is really a step forward to a more resilient supply chain.
c. The US indoctrination system (can’t really call it an educational system any more) can crank out more graduates of Womyn’s Studies than the galaxy needs, but is doing an awful job of educating people who are capable of understanding numerically-controlled tools.
It is also notable what Kearny does not mention in their conclusion that only modest amounts of manufacturing will be brought back to the US — the incredibly damaging effects of excessively complicated taxation, of excessive regulation, and of excessive litigation risk from greedy politically-connected lawyers.
We really are looking at a Tragedy of the Commons. Long ago, Henry Ford realized that boosting the wages of his employees increased the market for his products. Now individual manufacturers can boost their own profits & cut costs in the short-term by offshoring their production — but they are also cutting the size of the US market for their products, since people can consume only what they can produce or borrow. Unemployed workers are poor consumers. When many manufacturers offshore, they are impoverishing their own communities — and eventually themselves. Tragedy of the Commons.
Gavin…”We really are looking at a Tragedy of the Commons. Long ago, Henry Ford realized that boosting the wages of his employees increased the market for his products.”
I don’t think that was Ford’s main motivation for the wage increase, though. He had a terrible turnover problem; people weren’t used to assembly line work and they didn’t like it. He really *had* to increase wages to keep people.
Also, here’s a thought experiment: What if US manufacturers had *not* moved to offshore their production?…Most likely, European companies, also indigenous Chinese companies, would have made similar products and imported them directly to the US. Hard to see what could have prevented this other than (1) a very strong buy-American movement, with US consumers willing to pay substantially more to get made-in-the-USA products, or (2) boycott of foreign manufacturers by US retailers–highly unlikely, or (3) significant tariffs or import quotas.
UNLESS the US manufacturers could have improved their production efficiency to the point where a huge wage disadvantage (and regulatory disadvantage) could be overcome.
Gavin, I think your conclusion is the result of CEOs managing their companies to quarterly expectations, rather than long-term profitability. (Maybe because their bonuses are unfortunately set to that metric.) It’s ridiculous when the market punishes a company’s stock price not for failure to generate profit, but generate the *expected* profit …
Reagan imposed tariffs on Japanese cars and trucks. The result was that Japanese car companies built US plants.
GM tried to build a Japanese model manufacturing plant in Tennessee (I think) and the union plus junior GM executives sabotaged it. It was to build the Saturn car. The story is in “Crash Course.”
The Japanese companies assumed the plants would be unionized but the workers voted down the union.
Volkswagon held two elections for the UAW trying to organize their plant. VW even helped the union and assumed they would win the election. VW probably has German unions on their Board.
The UAW lost both elections.
Dealing with lawyers is going to be tougher than unions.
Vis-a-vis the VW/union thing…
German unions are… Different. Very different. At the smaller end of the scale, they’re a lot more like the old guilds than not. I observed a case while I was stationed over there where the owner of a small woodworking firm was dealing with a situation where the nephew-in-law he’d hired was caught by senior employees stealing money, materials, and other things from the company plus the other employees. The owner wanted to forgive and forget, to keep the peace in his family, but the employee union was like “No, not only no, but hell no…”, and when the idiot nephew took it to the regional union authorities for arbitration, they reacted by blackballing him from every woodworking position in every one of their affiliated unions.
Here in the US, the union involved would have likely gone out on strike to get this creep his job back, and blackmailed the company into paying him back pay plus bonuses.
VW really does not recognize what they’re dealing with in US unions, which are entirely inimical to the companies they work for. Most US unions hear that allegory about killing the golden goose, and they’re like “Yeah, so?”, and just don’t get that the golden eggs ain’t happening without the goose.
There’s also the difference in professional organizations–One case in point being the difference between the US Army’s associated Non-Commissioned Officers Association and the Swiss equivalent. The US Army NCOA exists mainly to lobby for better benefits and higher pay. Swiss Army equivalent is concerned with lobbying for better marksmanship training, better training, and actually publishes various books and treatises on military matters–The von Bern guerrilla warfare book being the best-known example here in the US.
VW thinks it is dealing with decent human beings looking out for the best interests of employees and employer, rather than the vicious sociopathic extortionists that they are actually trying to hand their factories over to. The only equivalent I can think of is if some US firm went into Japan, and kowtowed to the various Yakuza bosses seeking to run things–With the difference that the Yakuza is smart enough not to wreck the companies in question.
“Here in the US, the union involved would have likely gone out on strike to get this creep his job back, and blackmailed the company into paying him back pay plus bonuses.”
Especially if it were the teachers’ union, sadly.
Saturn plant (now GM) is Spring Hill, Tenn. In late 1985 I was working as a Sales Engineer for a company involved in utilities service work
to the petrochemicals/refinery industries in the Golden Triangle region (Beaumont, Orange & Port Arthur, TX). When oil dropped to $10/bbl,
our district took a big revenue hit, and 2 of us were asked to relocate to another district. I was given a choice of 6 places to go. Spring Hill
was one of the choices. Not liking the heat and humidity of the southeast, I selected the Torrance, CA office. Ironically enough, while most of my
customers were the refineries in the South Bay area, I spent about 6 months calling on the GM Van Nuys plant where Camaros and Firebirds were assembled.
That assembly plant was a complete fustercluck. The other GM plant making those lines was in Norwood, OH. It closed in 1987, while Van Nuys closed in 1992.
The first mistake in dealing with American unions is assuming that they are in any way interested in representing the interests of their members. They are 100% committed to generating loot for the “leadership” to plunder. The only groups that approaches their conviction rate are Illinois and Louisiana governors.
I agree with the observation that moving from China to Mexico is jumping out of the frying pan into the fire. At least when the Chinese authorities “detain” foreign business men in a business dispute, they usually survive and I haven’t heard of anyone needing armored convoys to get from place to place.
“Hard to see what could have prevented this other than (1) a very strong buy-American movement, with US consumers willing to pay substantially more to get made-in-the-USA products, or (2) boycott of foreign manufacturers by US retailers–highly unlikely, or (3) significant tariffs or import quotas.”
I know what could have prevented it- A US government that was interested in the fate of the United States as a nation-state instead of as a piggy bank to pay for the elites’ fantasies about globalism.
But we don’t have one of those.
Instead, we have a government that negotiates a trade deal that makes it illegal to put “Made in USA” on an American-produced product and has no problem at all with tariffs imposed against us but fights bitterly against efforts to impose tariffs against our competitors.
Even when those efforts are only aimed at getting a better deal for American producers.
No nation will succeed when ruled by such fools- and the United States is no exception.
“Here in the US, the union involved would have likely gone out on strike to get this creep his job back, and blackmailed the company into paying him back pay plus bonuses.”
I used to work at a unionized steel mill.
There was no need to strike. I was told by a union official that what would actually happen is that the union would waive legitimate grievances to keep ****bags from getting rightfully fired.
He wasn’t pleased either. And by the time I left, the company had lost a lot of its willingness to tolerate that sort of nonsense. Incompetents were getting fired, which didn’t save the company from bankruptcy soon after.
Few years ago we bought a device from China as an experiment. The attraction was a cost of $6,000 versus $18-20,000 elsewhere. It worked fairly well for about a year until it accumulated enough issues that it stopped working.
I took a stab at fixing it, but gave up finally. Support from the manufacturer wasn’t an issue, I don’t think they had consistent access to anyone that spoke English well enough to respond to emails beyond filling orders for supplies. What I found beyond a poor physical and mechanical design was that many of the components were counterfeit. These were small chips that legitimately cost no more than $0.30-0.40 a piece.
Using this experience, I researched a replacement. There was no American made alternative. The choices were either German, Swiss or what I chose, French. It came at the expected multiple cost of the Chinese machine but promised American based service and parts. By the time it had gone out of warranty, it was clear that it was never going to work properly and that the manufacturer hadn’t a clue how to fix it. So it sits out in storage while we have reverted to a manual machine that’s probably as old as I am.
A lot of people will point out my mistake was to buy anything besides wine or cheese from France and I probably agree, this was my second bad experience and I don’t intend for there to be a third.
Right now, my problem is having to source a major component from England. They have been reliable but now I can’t get my emails returned.
On-shoring will come at a price but with many advantages, assuming that production is actually here.
@David Foster:
UNLESS the US manufacturers could have improved their production efficiency to the point where a huge wage disadvantage (and regulatory disadvantage) could be overcome.
Wages aren’t the biggest issue as they’ve been creeping up in the PRC for a few years now. It’s regulations that are the killer for US manufacturers, especially NLRB, EEO, and OSHA regulations. Any one of those can be bankrupting money pits. The total cost of all that regulatory burden sure makes it easy to ship manufacturing oversees.
CR…re regulation…someone at an investment site where pharma companies were being discussed…I believe the guy had experience in pharma…said something along the lines of:
“Consider building a pharma plant in China, and the mayor will take you out to a magnificent dinner, introduce you around, smooth the path on any approvals you need. Consider building one in New Jersey, and a horde of local officials will descend to make your life as miserable as possible”
UNLESS the US manufacturers could have improved their production efficiency to the point where a huge wage disadvantage (and regulatory disadvantage) could be overcome
Or developed new products that can realistically be made in America by Americans.
Henry Ford famously was supposed to have once said, ‘if I asked customers what they wanted they would’ve told me a faster horse’. While he never said exactly that, he probably believed it. Similarly, Steve Jobs did once say, ‘you can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.’
Was the world really clamoring for an iPod before it came out? Handheld computers had been around for years without selling, but it wasn’t until Jobs sold the iPhone that everyone decided they needed them. Human desires are limited, but human desire is eternal.
Like Ford realized he had to pay workers more to work for him, corporate producers need to realize they must pay society more by not just developing products but also people to make them. Otherwise they should be broken up to give someone else a chance to do it.
I used to work at a unionized steel mill.
When I was 16, I was working one summer as a helper on a Coca Cola truck. I was required to join the Teamsters union. While there, I attended a strike vote. It was a lesson I never forgot. The young single members all voted to strike, “To show those SOBs they can’t blah, blah, blah.” The older drivers with families and mortgages voted no.
I never forgot that.
@MCS,
I’m going to go out on a limb and suggest that you’re going to find that the British-designed product you’re looking at is likely designed very well, manufactured by craftsmen who truly care and know what they’re doing, but… The guys down on the level where you get support and shipping are either actively sabotaging everything about the product’s support, or they are victims of some form of psychological syndrome that is incredibly self-destructive.
I’ve dealt with Perkins, Stirling, what was once British Leyland, and a host of other UK manufacturers and other sorts of businesses. Where they mostly all fail is when it comes to execution and support–The expat Palestinian who ran the Stirling concession in Kuwait politely informed us that we’d be better off flying someone to the company in the UK to buy parts directly than rely on anything that Stirling would send out. As he described the experience, the first order would be late, not the right part, and likely shipped to the UAE, not Kuwait. The second shipment would still be late, but it might be the right part, and it would probably be lost in transit or damaged due to poor packaging for shipment. The third shipment would probably show up with some other issue previously not encountered, and the fourth would arrive immediately after the customer had said “Screw this… Install a Nissan or a Volvo…”.
There’s many a slip betwixt cup and lip, as the phrase goes, and I’ll wager good money that your UK supplier will demonstrate your worst nightmares in logistics, including things you’ve never before seen or imagined as being possible. I would highly recommend going with the Swiss supplier. You’ll be paying top dollar, but you’re not going to lose your mind dealing with the logistics failures. The Swiss are fussy bastards at all levels, and you’ll find the same sort of meticulous attention to detail in shipping/support that you find in their pathologically intricate machinery. At least, that’s been my experience. Your mileage may vary.
Companies also hesitate to deploy automation at scale across their US production networks because the supply of skilled labor required to operate newly automated production lines is so stubbornly scarce. Unemployment levels for manufacturing workers was a record-low 2.9 percent in 2019, continuing a 10-year tightening of the manufacturing labor market.8 As a result, companies have struggled to operationalize some of their aspirations. Foxconn, for example, recently slowed and then revised its planned $10 billion flat screen TV and LCD factory in Wisconsin. Citing concerns about labor force availability and cost to manufacture, the company chose to build a lower-tech plant on the site.
Foxconn was supposed to employ 13,000 people at that site, but to date they only have about 500 working there. What they are doing there now is anyone’s guess. With the benefit of hindsight, it appears that they simply lied about their plans and their capabilities. A tough lesson to be cautious about ever trusting Chinese-owned companies. The things that worked in China, along with Chinese laws and customs and authoritarianism, aren’t necessarily going to just be plugged into the United States.
“The older drivers with families and mortgages voted no.”
Things have changed. While I was at that mill, the contract came up for renegotiation. I don’t recall having a vote to strike, but I do recall preparations made for one. I distinctly recall hearing that when union officials went to talk to the people at the coke battery- an unpleasant place to work where most new hires were assigned- the union officials were told quite enthusiastically that they weren’t interested in striking because they had families to feed. The older people seemed much more inclined to go along with the union than the younger new hires. In the end, there was no strike.
“…it appears that they simply lied about their plans and their capabilities.”
This facility was to be built in the congressional district represented by Speaker of the House Paul Ryan. It always struck me as incandescently obvious that the only reason Foxconn claimed they were going to build that plant was to curry favor with him. Once he left congress, it became equally obvious that they wouldn’t follow through.
Anyway, of course they’re going to come up with some politically correct explanation as to why they couldn’t do what they said.
The go-to excuse- for essentially every company, foreign or domestic- is some variation on the assertion that Americans are just too expensive, too lazy, or too untrained. There are too many jobs Americans just won’t do, because shut up.
Nonsense. I guarantee Foxconn could have easily outbid Walmart or any local hotel to obtain all the labor needed, but- again- they had no real interest in building a factory here. They- again- just made the usual excuses.
A functioning pro-American government wouldn’t let them get away with that, but- again- we don’t have one of those.
Kirk,
I’m actually dealing with the American division for a part that’s made in England. They have always been very responsive, this might just be a glitch of some sort. Or they may be waiting for delivery information from over there. It’s a very well made, nearly unique item that would be a major headache to source elsewhere.
There’s a possible second source that’s American. Unfortunately, dealing with them is a major pain and why I’m getting it from who I am.
I know from experience that dealing with hazardous waste disposal here is convoluted, expensive mess. I also know from history what the alternative is; running it into an open pit and burying it, putting it in drums and burying it, running it into an open pit, burning it, then burying it and the all time favorite, washing it into the nearest creek. All of which is occurring in China right now. They will come to regret it beyond just throwing any one that speaks up in jail, but not yet. They still see it as a competitive advantage.
Nonsense. I guarantee Foxconn could have easily outbid Walmart or any local hotel to obtain all the labor needed, but- again- they had no real interest in building a factory here. They- again- just made the usual excuses.
It’s even worse than that. Foxconn wouldn’t need to scoop up bottom of the barrel service employees. Motorola and it’s network of suppliers used to employee thousands of skilled tech workers just across the state line until they were all laid off when the company was dismembered and sold off. I’m sure many of them are still around somewhere.
In the 80s and 90s the family that had controlled Motorola for generations opened some large facilities that are easily within driving distance of Foxconn’s location. The real reason for opening them was basically that’s where the owners were from, and they wanted to employ people they knew. However, as is often the case in our finacialized economy, there was much concern about marginal costs, not maximizing shareholder value, comparative advantages, etc. When activist shareholder blocs led by Carl Icahn finally seized the company from the family, those plants were closed.
MCS: “There was no American made alternative. The choices were either German, Swiss or what I chose, French.”
That is a great real-world example, MCS. Germany is not a low-wage country. Switzerland does not simply dump the waste from its manufacturing into those famous lakes. French workers do not work longer & harder than workers elsewhere. So why is there no American manufacturer? The US market is probably bigger than the German, Swiss, & French market put together.
The reality is that a US manufacturer would face impossibly higher overheads than one in any of those 3 countries — thanks to incredibly convoluted taxation, repressive over-regulation, and the high costs of keeping greedy attorneys from litigating the company into bankruptcy. Those are all politically-imposed burdens on US manufacturers which have cost the US people jobs & incomes, and have cost the US government tax revenues. The only beneficiaries are the politicians and their running dogs in the bureaucracies and the media. When are we going to rise up and do something about that, people?
Gavin,
It’s actually a very small, very specialized market. Maybe 100, probably many fewer, per year, world wide. We knew the Chinese machine was a risk, as was, it still made us money. There was some thought that we might have become distributors.
This is the first time I’ve heard any European country described as “low overhead”. The reality is that it is very tortuous to start any business there. Then there are onerous employment rules that make it next to impossible to fire anyone, once hired. Then there are very high taxes in general and especially on wages with contributions for all the goodies that a real welfare state provides.
The barriers to our competing with the Europeans are all on their side in the form of various “protections”.
A lot of people have told me over the years that the $5 wage was to increase his market by letting his workers buy cars. A minute think about makes it obvious that the math woul never work.
This was an effect but only very indirectly the reason. There’s a whole chapter in his first book, my life and work about how the $5 wage was “the greatest cost cutting measure he ever made” and a discussion of the economics of it.
Part of the original mission statement for Ford in 1908 was that “I will build a car so inexpensive that every working man will be able to afford one” quoting from memory.
Everything Ford did was to reduce manufacturing costs, while improving quality and reducing price sometimes reducing price first then challenging his employees to reduce costs below the new selling price.
Along the way he invented the “Toyota Production System” and Lean manufacturing.
I’ve been working with and teaching lean manufacturing for more tha 40 years. The single best book I have ever read on the subject is his autobiography “my life and work”.
The Japanese agree. It has been in print continuously in Japanese for a century until I republished it privately about 15 years ago, it had been out of print in English for most of that 100 years.
John Henry
Lean manufacturing is manufacturing without waste. Or, perhaps better to say a continuous effort to identify and eliminate waste in manufacturing.
Toyota Production System is Toyota’s name for the way Toyota practices lean
John Henry
David, thank you for posting that report. I am about to start an article on reshoring with focus on pharma.
That looks like it will have some good info I can use
John Henry
The jobs at Foxconn in WI were never “tech” jobs.
The plant sounded like a typical electronic assembly job. Unskilled, manual labor. No special training required beyond the first.
From a worklife aspect probably less enjoyable than working at Walmart.
8 hours a day, sitting in a chair inserting resistor a into holes 17 & 18.
There would be tech jobs, of course. Maintenance techs and such that keep the automated machinery going. Programmers and other.
But 13m employees told me the focus would be more on manual labor than automation.
Stuffing components is no more a “tech” job than stocking shelves at Walmart. Even if the finished product is “tech”, like a TV.
John Henry
>Stuffing components is no more a “tech” job than stocking shelves at Walmart.<
You like empty shelves at Walmart? How are your soldering skills? What constitutes
an "acceptable job" to you?
I’m not saying it is a “bad” job and I will never knock honest work.
My mother and father in law both spent 35 years working fo GE stuffing parts in circuit breahers and put 5 kids through college on wages that were never a lot more than the minimum.
They are not particularly rewarding or intesesting jobs but, for people who have no skills, they are pretty good jobs.
Ditto the shelf stocker
But the Unskilled Foxconn jobs are no more “tech” jobs than shelf-stocking and that was my point.
John Henry
My degree at Dartmouth was partly about the Toyota method applied to Medicine. I have attended a number of conferences over the years and posted an example here 10 years ago.
Obamacare upended all those efforts to imp[rove quality and I ran into opposition from administrators at UCIMC when I attempted to implement a plan to improve care for the elderly. The doctors at UCI were enthusiastic but the CEO of the medical center vetoed even the proposal which would have been grant supported.
Administrators and doctors have been enemies for a century. Obamacare is all about cost. I was never able to convince administrators that quality reduced cost. They were GM, not Toyota.
MCS: This is the first time I’ve heard any European country described as “low overhead”.
We may be talking past each other here, MCS. The question is — why can Germany, Switzerland, and France each support a specialized manufacturer — while the much larger USA can not?
There was no suggestion that European countries are low overhead. But there is overwhelming evidence that US politicians, bureaucrats, and lawyers have made the US into a very expensive place to do business. Those costs may not fall into the narrow accounting definition of “overhead”, but they are very real. Hence US manufacturers have offshored or closed down — leaving the people of the US worse off.
You are correct that Euroscum mouth words about “free trade” while practicing protectionism. Just look at Airbus. Until President Trump came along, the entire US Political Class firmly averted their eyes from the obvious downsides of this semi-unilateral “free trade” which left the US with an unsustainable trade deficit and a real unemployment rate much higher than government figures.
Grurray, Foxconn is a Taiwanese corporation.
Foxconn is a Taiwanese corporation that won’t be in business ten minutes after the CCP decides that they don’t want them to be. Possibly excepting whatever rump they have that operates outside of China that isn’t dependent on parts from China.
It would actually make a lot of sense for them to diversify out of China if they could. You can be sure that China will prevent that if they can.
Just because the government of Vietnam is on the outs with China and hungry for deals now doesn’t make them more dependable or less totalitarian than China. Malaysia and Indonesia have their issues too. Pretty much all their trade is transshipped through Chinese ports with their manufacturers dependent on Chinese suppliers. Nor do they have transportation infrastructure that extends beyond sight of their ports or utility infrastructure outside of scattered enclaves.