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The Insourcing Boom by Charles Fishman
The Atlantic 12/2012
After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone. An exploration of the startling, sustainable, just-getting-started return of industry to the United States.
…. In the midst of this revival, [GE CEO Jeff] Immelt made a startling assertion. Writing in “Harvard Business Review” in March, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just four years after he tried to sell Appliance Park, believing it to be a relic of an era GE had transcended, he’s spending some $800 million to bring the place back to life. “I don’t do that because I run a charity,” he said at a public event in September. “I do that because I think we can do it here and make more money.”
… Immelt hasn’t just changed course; he’s pirouetted.
What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States. Now the CEO of America’s leading industrial manufacturing company says it’s not Appliance Park that’s obsolete—it’s offshoring that is.
… But beginning in the late 1990s, something happened that seemed to short-circuit that cycle. Low-wage Chinese workers had by then flooded the global marketplace. (Even as recently as 2000, a typical Chinese factory worker made 52 cents an hour. You could hire 20 or 30 workers overseas for what one cost in Appliance Park.) And advances in communications and information technology, along with continuing trade liberalization, convinced many companies that they could skip to the last part of Vernon’s cycle immediately: globalized production, it appeared, had become “seamless.” There was no reason design and marketing could not take place in one country while production, from the start, happened half a world away.
You can see this shift in America’s jobs data. Manufacturing jobs peaked in 1979 at 19.6 million. They drifted down slowly for the next 20 years—over that span, the impact of offshoring and the steady adoption of labor-saving technologies was nearly offset by rising demand and the continual introduction of new goods made in America. But since 2000, these jobs have fallen precipitously. The country lost factory jobs seven times faster between 2000 and 2010 than it did between 1980 and 2000.
Until very recently, this trend looked inexorable—and the significance of the much-vaunted increase in manufacturing jobs since the depths of the recession seemed easy to dismiss. Only 500,000 factory jobs were created between their low, in January 2010, and September 2012—a tiny fraction of the almost 6 million that were lost in the aught. And much of that increase, at first blush, might appear to be nothing more than the natural (but ultimately limited) return of some of the jobs lost in the recession itself.
Yet what’s happening at GE, and elsewhere in American manufacturing, tells a different and more optimistic story—one that suggests the curvature of Vernon’s product cycle may be changing once again, this time in a way that might benefit U.S. industry, and the U.S. economy, quite substantially in the years to come.
PMI Industries, Inc. Confidential Offering Memorandum 2-8-13 17
… What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic.
… In fact, insourcing solves a whole bundle of problems—it simplifies transportation; it gives people confidence in the competitive security of their ideas; it lets companies manage costs with real transparency and close to home; it means a company can be as nimble as it wants to be, because the Pacific Ocean isn’t standing in the way of getting the right product to the right customer.
Many offshoring decisions were based on a single preoccupation—cheap labor. The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful. Jobs are coming back not for a single, simple reason, but for many intertwined reasons—which means they won’t slip away again when one element of the business, or the economy, changes.
This article available online at: http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/