Just Under the Radar: The Human Factor
By Bob Pinato, MPD Editorial Advisor
M ost of the time in this column we like looking at the high tech industry; the gadgets, the innovators, the implementers and the lesser heard uses of technology and channels of information which make our lives more enjoyable. Rarely do we look at the human factors of trade, politics, and international dynamics and how they can affect not only our buying habits as well as our careers, but also the high technology development industry we engage with daily and product generation which comes out of it. Today I’d like us to look at another angle of how things happen, how they affect us and where they are going with regards to our respective industries.
There is much being said these days about jobs. The lack of jobs, jobs moved offshore, lower paying jobs with and without benefits (starbucks for example offers health insurance), finance jobs with extraordinary bonus schemes, professional jobs and shortages of key experienced professionals in the sciences & engineering and last but not least government jobs, elected officials (who feel that they have lifelong professions) as well as the bureaucratic gears, with now over the top pensions. Including the fact that we are having shortages in key areas, of capable people, in manufacturing engineering, technology development and other engineering curriculums. All of these statements are true and all of them are affecting the way we do business. And at one time or another, very rarely in an analysis, they are all making the headlines. All vying for mind share and steer the way we think about our country and business.
One of the pet peeves for this year is offshoring. Regardless of the facts, Elected officials like to point to the off shoring which has been taking jobs away from our American laborers and shifting them overseas. Pointing at this situation like it just happened in the last few years and of course NOT while they were or have been in office. Less so by the shoppers who prefer the lower priced goods over the higher priced, almost same quality US manufactured goods.
Believe it or not I can still buy cotton handkerchiefs, underwear and t-shirts made in the USA. Heck I could even find plastic trash cans, Teflon pans and a few other low end trinkets still made in the good ‘ol USA.
What is comical is that although we design stuff, we don’t manufacture stuff. Except for the few firms who still manufacture low volume, high performance, high margin products for some key high end industries. Of only a few which still exist in our great expanse of a country.
Is it the cost of labor? Or is is deeper and more sinister, like tax structures, lack of incentives, government regulations and paperwork and on and on. Yes our labor is more expensive, and yes the quality of labor is comparable in many regions of the world today due to automation and very good quality processes demanded by the end customer and manufacturers alike. But what started all this was also the paperwork muddle which many firms got tired of when faced with the prospect of a potentially lower cost higher profit motivator (which everyone was looking at 10 years back) such as moving overseas (or at least to south of the border).
Well right in the middle of all this arguing over offshoring we have a revelation. The cost of manufacturing offshore may not be all that it was calculated to be. Years back when things were cheaper overseas, Well it appeared to be anyway, Labor was 20% of the labor cost in the USA. Benefits were less as the workers did not need as much as our mature labor force back home and contributions to pensions we negligible when compared with programs in the USA. Cost of facilities, while comparable to those back home, had other advantages provided by local authorities in the area of taxes, electrical subsidies and long term leases.
Flash forward 10 years and here we are in 2012 looking at all this investment made and suddenly are shocked by the changes which have occurred right under our noses. Labor cost, for example in China, has tripled or quadrupled from a low of $80-100 a month to well over $400 a month in direct labor costs. When one calculates the employer tax contribution of between 30-48% the labor costs become quite high. Add onto this the cost of the few expatriate-type management staff who make sky high salaries and the cost of sending out regular delta force staff to solve issues and the argument to manufacture overseas starts to lose steam for mid-sized manufacturing firms.
It has been calculated that the cost advantage for US firms to manufacture overseas has shrunk to a very narrow margin of only 10% from what it would be if we manufacture in the USA.
That is a shock to most managers as they look at their bottom lines and the contribution of the overseas manufacturing facility. Of course other factors such as local markets will have to be factored into the future thinking when considering the pulling back of manufacturing and R&D from overseas.
This new trend is picking up a few nice monikers, think of offshoring, such as reshoring, home shoring, snap-backs and just “bringing it all home” (I’m sure the politicians will take all the credit for the new jobs). It all sounds wonderful. As much as 20-30% of mid-volume manufacturing could be brought home within the next 2-3 years, creating the need for more young engineering talent to man/woman the factories and oversee production. On top of that think of what the creation of new skilled manufacturing jobs, where we have not filled them in over 10-15 years, will do for our infrastructure and industry.
Some things to think about. Logistics in the USA around manufacturing have been decimated when compared to places like southern China and eastern India. Places which have invested billions of USD to put the services and supply companies in areas surrounding the manufacturers. Think of Nike Town in Shenzhen with over 120,000 employees, its own ‘toen hall”, hospital, restaurants, schools all in an enclosed walled city. Others like it exist in India; Bangalore & Mumbai, China; Foxcon-apple, Suzhou, Shanghai as well as other places in the world. In a way it is like silicon valley replicated many times over in a small area in and near where the manufacturing parks are built.
So I believe while we may want to bring these jobs back, serious consideration must be made as more investments will need to be made, must be made, in the support structures in order to make these new transitions even possible.
Then we’ve got to get to work on the grooming of more young engineers and disciplines of manufacturing engineering right out of the universities. Or, as we have been trying to do in the high tech industry, bring in engineers on special visas, H-1, etc to fill the voids. Another necessary component of rebuilding our internal infrastructure across our land..
Again, another dynamic force, something to think about, working under the radar to make our industries, technology and products happen and provide our lives more paths to choose or follow, for the challenges we will face in our future. A lot happens out of sight of our everyday lives which effects the way we live, enjoy life, interact and even the way our dedicated and loyal government leaders, of whom you have a voice in selecting, take us on our journey to making the USA the best place in the world to be.
Please pass your comments along to Microwave Product Digest and to ICCS Global LLC. ICCS Global LLC is a business and strategy consulting firm focusing on international business and technology with an emphasis on mobile communications, high frequency systems and advanced technology semiconductors which enable the communications and radar systems. Specializing in the USA & Asia Pacific regions, with offices in the USA, China, Singapore and Hong Kong.
Bob Pinato, MPD Editorial Advisor
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