The speed of
technology innovation is growing constantly, as technological products become
more powerful and affordable. Saying
that, it has also been difficult, if not impossible, to find these products
made close to home…unless your home is Asia.
This is not a recent phenomena but one that has been happening over the
last few decades.
Are we at
the beginnings of a change? Will Apple
be alone in its decision to start producing some of its Mac computers in the
United States? We all realize that these days the Macs are only a part of Apple’s
business empire but the imagery is powerful.
The fact
that Motorola followed suit with their announcement of producing the Moto X Smartphone
in Texas could be an indicator of things to come.
So the
question to ask is; does that mean technology companies will be shuttering
their overseas facilities and bringing manufacturing back to the US? The answer is no!
What is
happening the regionalization of this industry?
It is not re-shoring but near-shoring, or in other words having
production near the consumers.
Some of the
production in China and other parts of Asia will continue to serve that region
while the production in South America and Mexico will serve the United
States. This is not even near-shoring
but realignment.
The primary
reason for this is the cost differential has been shrinking. In 2000 labor cost in the U.S. were 23 times
higher than in China or other parts of Asia. At present the cost is only 8
times higher. In addition,
transportation costs are soaring in 2000 and before China produced items
arrived in the United States costing 22% less than same items made in
America. At the close of 2011 that cost
gap was only about 6%.
Another
reason was the complexity of the technology which may have dictated the need
for production to be closer to Research & Development. The complexity of the production process and continuous
innovation required in the high tech industry commands close approximation between
production and Research & Development. This development has caused some ‘opposite’
things to occur – a resurgence of technology manufacturing in Silicon Valley.
Deciding
where to place an R&D facility has become more complicated for two reasons –
costs and training. To offset those
costs many companies are developing R&D facilities at the local market
level to meet local demand and then expand globally.
Yet another
factor is the large supply of college trained workers. The American intellectual wealth makes it
easier to develop first of its kind products.
The United States has only 5% of the entire world’s population but has
one third of the high tech researchers.
There are
three factors which need to be watched to see if they help or hinder this
future. They are the following:
1. Intellectual property – Will the
United States intellectual property continue to outweigh the labor cost
savings? How will technology development
costs increase or decrease as a share of the total product cost?
2. Labor quality – Will labor quality
become more important than labor cost?
The quality of the available work force will be determined by the
quality of our K-12 education and the institutes of higher learning. I am specifically referring to the STEM –
science, technology, engineering and mathematics.
3. The states to be truly business
friendly – Unreasonable government regulations are toxic to establishing new
manufacturing operations. Successful
states are building cooperatives between university and industry to build the
type of work force that will be required.
All
locations should offer incentives to build and support new manufacturing
facilities. Areas in the United States
which are newer to the high tech industry – those areas other than Silicon
Valley, Boston and Austin – should offer the best packages which include tax
concessions, economic grants, reimbursements and training partnerships with
local universities.