Friday, November 30, 2012

From Outsourcing to Insourcing

By Evan D. Robertson, Project Associate.

It’s no secret that Market Street staff feel strongly that manufacturing serves a vital role in the local economy. Two great examples that come to mind are Matt Tester’s blog titled In Which We Tell Manufacturing’s Future which details the myriad of developments that are restoring American manufacturing competitiveness, and Ellen Cutter’s past post describing the adoption of automation in factories throughout the country. So, to add more fuel to the fire, I recently came across Charles Fishman’s article pronouncing the death throes of outsourcing in America.

The chase for cheap labor has been a part of American business ethos for decades. But, as Fishman describes, CEO’s are beginning to see that this pursuit comes at a cost: less control over intellectual property (knock-offs), higher shipping and logistics costs, and increased wage parity with China. Increased wage parity with China? I know, borderline crazy talk. But, when General Electric recently moved the production of their technologically advanced, environmentally sustainable water heater (GeoSpring) to the United States, they were able to eliminate one out of every five parts, cutting the cost of materials by 25 percent. And, the reduced complexity of the water heater cut General Electric’s labor costs. The American manufactured water heater takes just two hours to manufacture, down from ten hours in China. With efficiency like this, you can see why Jeff Immelt, CEO of General Electric, states “I think the era of inexpensive labor is basically over. People that are out there just chasing what they view as today’s low-cost labor – that’s yesterday’s playbook.” The decades-long ethos may soon be coming to an end.