Monday, February 20, 2012

Manufacturing plants coming back from Asia?

It's not like all those jobs at Wuxi are going to come back, but via Paul Thomas of Pharma Manufacturing, I see that the managing director of Boston Consulting Group thinks that China's cost advantage days are ending:
Knowledge@Wharton: What are some of the other factors that you think are making it possible for U.S. companies to become more competitive in manufacturing? 
Sirkin: I think that we continue to focus on productivity of our work force. We are growing productivity quite nicely -- not at 8% a year, but at a substantial rate. U.S. companies are beginning to realize there are some problems with producing far away, that there are actual costs to that. I remember one CEO, when he worked out the economics, said the best thing for him was that his wife wouldn't bother him at two o'clock in the morning because he was on the phone. And he didn't have to fly 6,000 miles to go see his factory. That's an intangible, but it's real, and it points out the value of being close. When wages were 58 cents an hour when China entered the WTO, it was a very simple decision to go to China because [the wages] were so low. But those wages have gone up dramatically, and they continue to go up dramatically. Now it's not such a simple decision. Companies are beginning to rethink it. We expect over the next few years that there will be a lot of rethinking because manufacturing in the U.S. is becoming very competitive. 
Knowledge@Wharton: Could you give examples of companies that are driving this renaissance in manufacturing? And what are some of the kinds of jobs that are coming back? 
Sirkin: There are a lot of companies that are doing it. Again, I think we're still in the early stages. You see big companies like National Cash Register -- NCR -- that was manufacturing their ATMs in China for the U.S. and is now manufacturing in Columbus, Georgia. You see Ford adding jobs into its plants. I think they committed to 12,000 jobs. And you see companies like General Electric adding capacity to produce water heaters in their Louisville, Kentucky, plant. It's also smaller companies. So Farouk Systems, which makes hair dryers, has moved I think 1,500 jobs back from China to the U.S. You see Coleman, the manufacturer of water coolers, starting to build water coolers in the U.S. I can go on and on and on with the list. Every day we seem to find more and more companies that have made the decision. 
They're realizing that the total costs of manufacturing in China -- with the wages being higher and all the other intangible issues -- are starting to make it just far more economic, far more logical to do this. Now some people may think that means factories will close in China. That's not going to happen. That's not going to happen because of the way the Chinese economy is structured. China's growing 8%, 10%, 12% a year. China actually needs to build more factories just to support the domestic demand. So it's not about companies making decisions to close a plant in China. Ironically, it's the fact that the Chinese economy is growing so rapidly that makes it possible for U.S. companies to very quickly build plants in the U.S. because they need to put another plant in their system. They can just convert the stuff they used to ship from China to the U.S. to domestic consumption in China, and then just build the plant in the United States. So ironically, China's success is what's causing this manufacturing renaissance.
Well, I hope that's true. 


  1. As a medicinal chemist, I just only wish all those outsourced job to China (most especially WuXi) and India are back. For some (including I) it will be late, but it is good for the future medicinal chemists here in the USA. Better late than never!

  2. with gradual economic recovery, cars, washing machines and water boilers are sold again. For items that are costly to ship, it makes good sense to manufacture it somewhere in Midwest for the domestic market. In pharma the situation is different - the industry has been in steady decline over the last decade, the business model is broken due to stunning mismanagement brought by obscene bonuses, and outsourcing research to South Asia is just another miraculous solution that will yet have to prove its worthlessness over the next couple years. By then another paradigm shift brand new bullshit will be introduced, etc.

  3. Its interesting that the non-tangible issue that first popped into one CEO's mind was his travel schedule.

    Guess he doesn't give a shit about low quality products harming consumers, stolen IP, awful US economy, the conditions in Asian factories, or the demoralization of the legions of laid off workers in developed economies.

  4. Let me guess, after all these years of telling people to source their chemistry, BCG is now happy to turn around and recommend to companies which projects should stay domestic. One of us science types needs to head to Boston and jam a shoe up someone's ass at BCG headquarters.

    I'm curious what good it will do to keep projects in-house now that all the expertise has been jettisoned to preserve the stock price. God forbid, Pfizer will either have to get one of their 5 "designer chemists" to get their hands dirty or actually hire some new PhD instead of just putting up fake ads. Big pharma is a wasteland of jack-offs waiting for their turn to suck at the money-tit.

    1. You seem a wee bit bitter, don't you.
      Anyway, I have gotten off of the pharmaceutical merry-go round years ago and I am transitioning to be a science teacher. Like all businesses, the goal is to make lots of money and keep the shareholders (and CEO) happy, it does not matter about the customer, the employees or the community. See, the truth will set you free.

  5. Perhaps experienced med/process chemists should seek employment at BCG. This is the only way to obtain the power needed to save the industry.

    That is if the industry is not beyond all hopes already.

  6. So, does this mean we're winning the race to the bottom?