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Manufacturing

In my previous blog, “Made in the USA, again,” I discussed a report from BCG which claimed that by “by 2015 manufacturing in some parts of the US will be just as economical as manufacturing in China.” While this may sound very encouraging, 2015 may be a bit overly-optimistic. Even one of my colleagues tweeted about my blog: “2015 seems too early and not sure I agree.”

This issue, and BCG’s report, were reported recently in my favorite magazine (I know, I know — they refer to themselves as a “newspaper”), The Economist.

According to the article, skepticism is likely in order. Mere labor arbitrage leveling may not be enough to drive manufacturers back to the US. The US may lack the necessary technology or infrastructure necessary to set up a competitive plant. Instead, there could be a lag time before US manufacturers could have the equivalent capabilities as a current plant in China, for example.

More worryingly, that lag time could be permanent:

Even if wages in China explode, some multinationals will find it hard to bring many jobs back to America, argues Mr Pisano. In some areas, such as consumer electronics, America no longer has the necessary supplier base or infrastructure. Firms did not realise when they shifted operations to low-wage countries that some moves “would be almost irreversible”, says Mr Pisano.

This type of situation may drive manufacturers to hedge their bets and have operations in multiple locations.

The silver lining, in my opinion, is article’s focus on improving supply chains as an alternative to labor arbitrage. This puts solutions back into the hands of the manufacturer. It is difficult for a manufacturer to affect the value of the dollar against the yuan, for example. But a manufacturer can be innovative and utilize techniques and technologies that will improve its supply chain and reduce inventory costs.

It is in these areas of innovation where the US tends to excel – which makes BCG’s prediction of a “manufacturing renaissance” more likely.

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