High-Tech Manufacturing to the Rescue

How Technology Manufacturers Can Lead the Insourcing Movement and Save the American Manufacturing Industry

 

President Obama gathered business leaders to the White House last month to discuss how to save American manufacturing. Focused on reversing outsourcing in particular, one of the strategies that emerged was high-tech manufacturing. As an industry sector that relies less on cheap labor than it does innovation — something America has traditionally excelled at — high-tech manufacturers are uniquely positioned to rally American manufacturing — and by proxy the U.S. economy.

 

High-tech products differ from their low-tech counterparts in myriad ways, but most significantly in its relation to cheap labor. Whereas wages are the biggest consideration for a low-tech item such as a toothbrush, the manufacturing of higher-end technologies hinges on completely different factors: skilled workers, precision assembly, intensive research, complex technology — and above all, access to innovators.

 

America can offer manufacturers a brand of innovation and class of innovators that is to this day unmatched by any other country. While our lead in STEM education (science, technology, engineering, mathematics) has indeed slipped, we are still the recognized worldwide leaders in innovation. GE's "Global Innovation Barometer," which polled a thousand senior executives from a dozen countries last year, found the U.S. to be the clear "innovation champion" in the world, followed by Germany.

 

The Move to Insource Has Begun

After shedding jobs for more than a decade, American manufacturers have reversed the trend by adding jobs for the last two years. Many attribute this to the return and creation of high-tech manufacturing centers in the U.S.

 

"That's why there's such a strong push by companies like mine to build things like wind turbines, clean coal and smart grid technologies in the United States," says Siemens U.S. CEO Eric Spiegel. "With the right army of innovators, each of these products will have constant room for improvement."

 

Siemens recently opened a plant in Charlotte that builds the worlds most advanced and efficient natural gas turbine. Why in America? "Because each new generation of the turbine will need to be better than the previous one," said Spiegel. "That's how you leverage America's strength. That's how you make manufacturing work in America." In fact, it does seem to be working: The Labor Department reported the first year-over-year growth since 1997 (136,000 job increase).

 

CGI, a midsized tech services company, is another great example. Based in Quebec, CGI has offices in more than 40 U.S. locations and centers in Bangalore, Hyderabad, and Mumbai, India — but has recently opened development centers in small U.S. towns such as Belton, Texas, Lebanon, Viriginia, and Troy, Alabama.

 

"These are areas that have been harder hit by the downturn than others, but they offer a set of dynamics that are working in our favor," explains George Schindler, CGI U.S. President. "They offer a great cost of living, they are motivated from a local government perspective, and there are partnerships with community colleges that can train people in the skills we need. It makes an attractive cost case, whereas the opposite is happening in some other parts of the world."

 

Having said that, it's worth pointing out that the cost case for countries that have historically offered drastically cheaper labor than in America is diminishing. Consider India, where the wage rates are growing 20-30% yearly compared to a paltry 2-3% here.

 

China is an even better example: 10 years ago, a factory worker in China made 58 cents an hour. Today, that same worker makes more than $3 an hour — an almost 600% increase. That figure is slated to double by 2015, when factory workers will make $6 an hour.

 

Furthermore, U.S. workers are the most productive workers in the world — three times as productive as Chinese workers for example — lessening the cost advantage even more.

 

Although the movement to insource in general and create high-tech manufacturing centers in America in particular is small now, the math adds up: Expect to see high-tech innovations contribute to the revitalization of the U.S. manufacturing sector. However — for how long and how heavily depends entirely on the level of innovation that accompanies it. It isn't enough to innovate once, the reinvention must be continual: If products are not improved on each new generation, they become commoditized and are forced to fall back on cheap production values. Without redefining a product's edge — again and again — anyone anywhere can replicate the product and compete on production cost alone, and we are back to where we started.

 

To better understand this emerging issue and how IT leaders can leverage innovation to stay ahead of the competition, we at STAR BASE encourage you to contact us directly with any questions.