When President Barack Obama tours the Daimler Detroit Diesel plant in Redford, MI this afternoon, the folks at Daimler are expected to have good news for him. According to Todd Spangler’s article in The Detroit Free Press, the company will officially announce its plans to invest $100 million to expand production in the US. Adam Satariano & Josh Tyrangiel from Bloomberg Business Week also reported last week that Apple’s CEO Tim Cook also plans to spend $100 million on bringing some of its manufacturing back to the US.
Spangler explains that Daimler’s on-shoring its operations to save money and enable its divisions to work together more efficiently:
By making all the parts – engine, axles and transmission – in one place, Daimler says its engineers can design each part to work more effectively with the others, resulting in greater fuel efficiency and lower total cost for ownership for customers.
So why is Apple on-shoring manufacturing for its personal computers less than a year after the late Steve Jobs infamously told Obama “Those jobs aren’t coming back” at a dinner in February 2012? In his article from last week, my colleague, Nathaniel Downes, explains that automation and increased productivity offset the increased costs of US labor. Quartz‘ Gloria Dawson writes that a handful of 21.5″ screen iMacs have already turned up on shelves with the “Assembled in the USA” label, and speculates that — although PC’s are only 15% of Apple’s market — the company may be trying to “get away from its competitors.”
Horace Dediu, a mobile industry analyst at Asymco, has been urging tech companies to move their operations back to the US for over two years, and wrote in his blog about how Samsung’s advanced knowledge of Apple’s orders tipped them off on future demand for larger-screen smartphones, resulting in their iPhone rival, Galaxy:
An insidious problem emerges when outsourcing: suppliers tend to become competitors… Consider how Samsung’s foreknowledge of Apple’s orders allowed them to anticipate the demand for large screen smartphones. Receiving orders years in advance for memory, screens and CPUs in the hundreds of millions would be a clear indication of demand. Receiving funds with which to build capacity is an enormous help when turning on production for your own versions of the product… The supplier-turned-competitor is one of the risks of outsourcing production and is at the root of disruption from value chain evolution.
Devinda Hardawar from the technology blog, VentureBeat, adds that Cook’s change of heart — he was originally one of the forces behind off-shoring — may have also resulted from the bad publicity surrounding Apple’s relationship with FoxConn and wanting to reduce the company’s reliance on Asian suppliers.
Despite all the hooplah about former presidential candidate Mitt Romney’s Bain Capital buying companies and sending workers’ jobs overseas, other companies have been quietly moving their operations back home, according to “The Insourcing Boom,” an article for The Atlantic Monthly by Charles Fishman. General Electric’s Appliance Park unit has hired 1900 workers this year for a total of 3,600 hourly employees — a 90% increase. This trend began in 2008, when Appliance Park manufacturing managers Dirk Bowman and Rich Calvaruso revamped the assembly line for GE’s dishwashers, and were able to make big improvements by having the designers, engineers, and workers working together in one place. “It’s easier to assemble. It’s cheaper. And the fit, feel, and finish are better,” enthused Caruso. According to Fishman, “By the end of 2014, GE expects 75 percent of the appliance business’s revenue to come from American-made products like dishwashers, water heaters, and refrigerators, and the company expects that its sales numbers will be larger, as the housing market revives.”
As Asian companies become our competitors while their workers’ wages get higher; as products grow more advanced and require more integrated approaches for ongoing development and manufacturing; and as automation technologies enable higher productivity with fewer workers — the economic advantages of off-shoring begin to disappear. In addition, Industry Market Trends‘ David Sims reports that both American and Chinese consumers prefer the “Made in the USA” label and are willing to pay hefty premiums for these products.
Caterpillar and Google are also moving their overseas operations back home, according to Bloomberg’s Business Week. In the Wake of Apple’s announcement, Hewlett Packard also told The Inquisitor‘s James Johnson that they want to remind us that they’ve been assembling their PC’s in the USA “since the beginning.”