Sunday, July 22, 2012

The Future of Manufacturing: America not China

From the Foreign Policy article: "The Future of Manufacturing Is in America, Not China," by Vivek Wadhwa:

"Ralph Lauren berets aside, the larger trends show that the tide has turned, and it is China's turn to worry. Many CEOs, including Dow Chemicals' Andrew Liveris, have declared their intentions to bring manufacturing back to the United States. What is going to accelerate the trend isn't, as people believe, the rising cost of Chinese labor or a rising yuan. The real threat to China comes from technology. Technical advances will soon lead to the same hollowing out of China's manufacturing industry that they have to U.S industry over the past two decades."

"Several technologies advancing and converging will cause this."

"First, robotics.  The factory assembly that China is currently performing is child's play compared to the next generation of robots -- which will soon become cheaper than human labor."

"Then there is artificial intelligence (AI) -- software that makes computers, if not intelligent in the human sense, at least good enough to fake it. Neil Jacobstein, who chairs the AI track at the Silicon Valley-based graduate program Singularity University, says that AI technologies will find their way into manufacturing and make it "personal": that we will be able to design our own products at home with the aid of AI design assistants. He predicts a "creator economy" in which mass production is replaced by personalized production, with people customizing designs they download from the Internet or develop themselves."

"How will we turn these designs into products? By "printing" them at home or at modern-day Kinko's -- shared public manufacturing facilities such as TechShop, a membership-based manufacturing workshop, using new manufacturing technologies that are now on the horizon."

"By the end of this decade, we will see 3D printers doing the small-scale production of previously labor-intensive crafts and goods. It is entirely conceivable that, in the next decade, manufacturing will again become a local industry and it will be possible to 3D print electronics and use giant 3D printing scaffolds to print entire buildings. Why would we ship raw materials all the way to China and then ship completed products back to the United States when they can be manufactured more cheaply locally, on demand?"

"It's a near certainty that robotics, AI, and 3D-printing technologies will advance rapidly and converge. American companies are already finding the rising cost of labor, shipping costs and time lags, and intellectual-property protection to be major issues in doing business in China."

"The most advanced automobile of today -- the Tesla Roadster -- is already being manufactured in the United States using robotic and AI technologies. Google just announced that it will produce its highly-acclaimed Nexus 7 tablet in the United States. This is just the beginning of the trend. So, let me predict a future headline: 'Protests break out in China over 2020 Summer Olympic uniforms, 3D-printed with U.S.-made technology.'"

HT: Sadanand Dhume

24 Comments:

At 7/22/2012 10:53 PM, Blogger VangelV said...

The most advanced automobile of today -- the Tesla Roadster -- is already being manufactured in the United States using robotic and AI technologies....

It is one thing to use robots to build a very expensive product for a niche market that is more concerned with signalling than performance but another to claim that the future of manufacturing is in using similar robots to make ordinary consumer goods.

And from what I see there is nothing stopping the Chinese, Lithuanians, Indians, or Finns from using the same technology to compete. At least they have the savings to invest and the people with the right skills to do the job.

 
At 7/23/2012 3:47 AM, Blogger Rosie Wilson said...

techfortrade, (a London-based charity) are trying to explore ways in which 3D printing can be used for social benefit, therefore we have launched the 3D4D Challenge, a competition for people with transformational ideas that could leverage 3D printing technologies to deliver real social benefits in the developing world, with the winner receiving $100,000 to help implement their idea.

I would love to start a discussion on ways in which 3d printing could help to relieve poverty in developing countries.

Also, if you are interested in applying for the competition, you can enter here or contact me at research@trade4all.org.

 
At 7/23/2012 5:16 AM, OpenID moneyjihad said...

We can lead the world in agriculture while having the smallest population of farmers.

The same should apply to manufacturing.

 
At 7/23/2012 5:19 AM, Blogger Larry G said...

And from what I see there is nothing stopping the Chinese, Lithuanians, Indians, or Finns from using the same technology to compete. At least they have the savings to invest and the people with the right skills to do the job.

this is true in terms of technology being available anywhere - including China.

what are the other things besides labor costs that would favor the US over China or India, etc?

If you listen to many folks here, the US has terrible business tax policies, onerous regulations, way too rich pensions and health care.

so which specific things would favor the US?

 
At 7/23/2012 6:23 AM, Blogger Ed R said...

Not a very convincing article.

“the real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” -- Adam Smith

As long as China has lower labor costs (and an artificially low currency peg)it can remain competitive with the USA or anyone.

 
At 7/23/2012 6:31 AM, Blogger Jon Murphy said...

Larry & Ed-

The main advantage of the US is our market.

The majority of goods consumed by a country are produced in or very near to the country. The US, even all said and done, continues to be the world's richest market. This will keep manufacturers within the States.

There is also our abundance of natural resources. We have a lot of inputs that are cheap and easy to get: lumber, oil, natural gas, fish & game, etc. This helps keep manufacturing costs low.

Finally, there are our ports. While China primarily has Shanghai, the US has Boston, New York, Baltimore, San Fran, New Orleans, etc. We can easily ship to anywhere in the world from any part of the country.

We could do much more if we removed the stupid regulations, rules, and taxes in our country, but the advantages that have made America a manufacturing powerhouse since the 1700's will persist.

 
At 7/23/2012 7:01 AM, Blogger Larry G said...

Hey Jon. Thanks for the explanation and it makes sense.

but what has changed from before where labor costs alone seemed to be the primary reason for manufacturing leaving the US and going to China, other countries.

What has changed - to reverse this?

is it simply the fact that manufacturing has become more and automated/robotified (is that a word?) - which has narrowed the advantage of cheap labor?

... are our advantages are primarily a superior transport infrastructure - better transportation - rail, road and ports once labor is mitigated?

bonus question -

has anyone ever generated a competitiveness index that shows how much damage the US suffers in comparison with other manufacturing nations - from regulation?

is there a "regulation index" for countries?

The Heritage Index has:
REGULATORY EFFICIENCY

China:
Business Freedom 46.4
Labor Freedom 55.4

USA:
Business Freedom 91.1
Labor Freedom 95.8

although the USA ranks 14th in the world on this criteria

 
At 7/23/2012 7:43 AM, Blogger VangelV said...

this is true in terms of technology being available anywhere - including China.

what are the other things besides labor costs that would favor the US over China or India, etc?


Labour is not as cheap in China as people claim. Yes, wages can be very low but many of the companies provide housing, some food, health care, daycare, etc., that are never considered when looking at compensation. The big advantage has always come from the protection of property rights and the US is moving backwards on that front. The American regulatory apparatus has stifled domestic innovation and industrial activity so many companies have moved abroad. Most will not come back unless the regulatory environment improves substantially and corporate tax rates come down.

 
At 7/23/2012 8:06 AM, Blogger VangelV said...

The majority of goods consumed by a country are produced in or very near to the country. The US, even all said and done, continues to be the world's richest market. This will keep manufacturers within the States.

But the US is broke. Total debts plus unfunded liabilities stand at more than $100 trillion while private savings are very low. To sustain this 'market' Americans have had to borrow from developing world countries and resort to money printing that is not sustainable. The USD, as the world's reserve currency has allowed Americans to live well beyond their means and the collapse of the Euro has given relative strength to the USD. Both will end and when they do the US will be seen as being in a worse position than Greece, Ireland, Spain, and Italy and the days of being able to print and spend will be over.

There is also our abundance of natural resources. We have a lot of inputs that are cheap and easy to get: lumber, oil, natural gas, fish & game, etc. This helps keep manufacturing costs low.

The US is well down on the back end of Hubbert's curve. It resorts to extracting tight oil and gas that are not economic and has had its coal and mining industries pushed to the brink by the EPA and activists.

Finally, there are our ports. While China primarily has Shanghai, the US has Boston, New York, Baltimore, San Fran, New Orleans, etc. We can easily ship to anywhere in the world from any part of the country.

I would look some more if I were you. The companies that I used to work with used ports in Tianjin, Guangzhou, Qingdao, and Ningbo. All are bigger than your southern ports, which are bigger than Long Beach, Baltimore, and New York.

We could do much more if we removed the stupid regulations, rules, and taxes in our country, but the advantages that have made America a manufacturing powerhouse since the 1700's will persist.

The biggest advantage came from a hard currency, reasonable regulations, and strong property rights. Congress has removed those, which is why the US is not doing as well as Mark claims.

 
At 7/23/2012 8:47 AM, OpenID Sprewell said...

This guy Wadhwa is an idiot, as he showed in his recent 60 Minutes appearance desperately trying to counter Peter Thiel about the worth of a college education, and his "mistakes" are characteristic of his loose grip on reality. He claims that the sold-out Nexus 7 tablet is manufactured in the US, when it is really the niche, higher-priced Nexus Q media streaming orb that is manufactured in the US. I have not seen any claims that the Nexus 7 tablet is manufactured here. Intentional conflation or just another indicator of his loose grip on facts: who knows?

That said, he's not all wrong: robotics is going to be big and some form of AI will play a role in making it so. I'm a skeptic on 3D printing though: we are in such an early stage right now that I have a hard time imagining it will ever get to the level he's talking about, too many breakthroughs necessary between here and there. The part that is spot-on is the notion of custom production, but that can be done without any of the three big technologies he lists, just by retooling current production lines, though perhaps robotics makes such customization much more economical.

 
At 7/23/2012 8:53 AM, Blogger Jon Murphy said...

but what has changed from before where labor costs alone seemed to be the primary reason for manufacturing leaving the US and going to China, other countries.

Well, just to be clear, only labor-intensive manufacturing left (textiles, plastic-forming, things like that). The capital intensive (ship-building, aircraft, vehicles, etc), has always been here.

But in more general terms, at the time much manufacturing was being outsourced, transportation costs (specifically the price of oil) was much lower than now. With oil prices rising, the cost of shipping goods across the Pacific Ocean has skyrocketed, pressuring manufacturers' margins. So, they are moving manufacturing closer to where the customer base is to reduce transportation costs. That is probably the biggest single shift over the past decade.

robotified (is that a word?)

It is now.

are our advantages are primarily a superior transport infrastructure - better transportation - rail, road and ports once labor is mitigated?

Transport is huge. Although China may have physically larger ports than ours, they are pathetically inefficient. Goods sit in containers sometimes for months on end before they are loaded and shipped. In the US, that turn-around is significantly quicker. In any market, as you well know, being the first to present your product has major advantages.

Finally, in China, there are quality control issues. It's not that the products in China are inherently of poor quality, but the quality is harder to manage. If you own a distributor in Cleveland and your supplier is in Columbus, it's easier to manage quality: make phone calls, visit factories, etc. However, if you're dealing with Beijing, you have time issues, language and cultural barriers, etc. Much of that was not taken into account when outsourcing began in earnest.

has anyone ever generated a competitiveness index that shows how much damage the US suffers in comparison with other manufacturing nations - from regulation?

is there a "regulation index" for countries?


Other than the Heritage Index (which I take with a grain of salt considering their political leanings), I don't know of an index, per se. There has been much research done on the effects of regulation (or the uncertainty of such), but I am unaware of any index. Of course, that doesn't mean it doesn't exist...

 
At 7/23/2012 9:01 AM, Blogger Ken said...

Vange,

And from what I see there is nothing stopping the Chinese, Lithuanians, Indians, or Finns from using the same technology to compete.

I'd say the main thing stopping these countries from doing the same is an educated, skilled work force. I'm not too sure about the Finns and Lithuanians, but I can tell you the education and skill levels chirped about in China and India is over hyped to say the least.

 
At 7/23/2012 11:58 AM, Blogger juandos said...

Not to worry Obama will help some of China's manufacturing...

 
At 7/23/2012 12:35 PM, Blogger VangelV said...

I'd say the main thing stopping these countries from doing the same is an educated, skilled work force. I'm not too sure about the Finns and Lithuanians, but I can tell you the education and skill levels chirped about in China and India is over hyped to say the least.

You are confused. Their students do much better in math and science than American students. If you look around in your universities you find that many of the post-doc students in those fields are foreigners.

 
At 7/23/2012 12:55 PM, Blogger Ken said...

Vange,

You are confused. Their students do much better in math and science than American students.

I am definitely not confused. I do know that the foreigners from these countries that are educated here represent their best and brightest. They also tend to stay here. Those who are educated in China and India at definitely a step below those educated here in the US.

 
At 7/23/2012 1:01 PM, Blogger Larry G said...

students from countries with large numbers of unskilled workers are not well educated...

that's why they are "low skilled".

 
At 7/23/2012 1:52 PM, Blogger VangelV said...

I am definitely not confused. I do know that the foreigners from these countries that are educated here represent their best and brightest. They also tend to stay here. Those who are educated in China and India at definitely a step below those educated here in the US.

But that is not what the testing is showing. The US scores very poorly on math and science. Look it up for yourself.

http://www.bloomberg.com/news/2010-12-07/teens-in-u-s-rank-25th-on-math-test-trail-in-science-reading.html

 
At 7/23/2012 2:26 PM, Blogger Ken said...

Vange,

What you've linked to is one of the primary reasons I think education is over hyped. Americans have scored fairly low on many standardized tests compared to many countries, yet Americans are far more innovative than any other country. I don't know what important factor is not being captured in these tests, but something definitely is.

Additionally, if what you are saying is true, then outsourcing high skilled, high tech jobs would be accelerating. Instead, what has been happening is the reverse. In the late 90's and early 00's, outsourcing these jobs occurred, based a lot on things like what you linked to.

These companies found that these foreign workers couldn't hold a candle to American workers. The lower productivity was not made up for by the lower costs. That's why the iPhone was developed here and is built in China. It's a lot easier to build than design. It takes way more skill to design that manufacture.

 
At 7/23/2012 4:20 PM, Blogger juandos said...

"yet Americans are far more innovative than any other country. I don't know what important factor is not being captured in these tests, but something definitely is"...

Well ken I don't disagree with this observation of yours but I also wonder just how many 'foreigners' have contirbuted to that innovation?

When perusing online documentation in chemistry and physics the names read like a roll call at the UN...

None the less, diamonds are where you find them...

 
At 7/23/2012 4:44 PM, Blogger VangelV said...

What you've linked to is one of the primary reasons I think education is over hyped. Americans have scored fairly low on many standardized tests compared to many countries, yet Americans are far more innovative than any other country. I don't know what important factor is not being captured in these tests, but something definitely is.

The US did very well because of very favourable regulations, strong property rights, and reasonable tax levels. People who were good at something were allowed to monetize that skill in a competitive marketplace that rewarded productive labour and capital. That era is gone and it is a lot harder for the average individual to do well.

Additionally, if what you are saying is true, then outsourcing high skilled, high tech jobs would be accelerating. Instead, what has been happening is the reverse. In the late 90's and early 00's, outsourcing these jobs occurred, based a lot on things like what you linked to.

Many companies have resorted to importing skilled workers and outsourcing various functions to countries that are better at doing them well and cheaply.

These companies found that these foreign workers couldn't hold a candle to American workers. The lower productivity was not made up for by the lower costs. That's why the iPhone was developed here and is built in China. It's a lot easier to build than design. It takes way more skill to design that manufacture.

I see little evidence of this. I used to work for Boeing and the factory in which I worked had employees who knew the standards and procedures much better than their American counterparts. The equipment was certainly better and much newer. While North American production was using some ancient mills that used to be located in the jungles of the Philippines the Chinese mills were brand new and much easier to control. The stretch form machinery was several generations ahead of what we were using and the tooling/engineering skills were on par with what we had working in our domestic plants.

 
At 7/23/2012 8:59 PM, Blogger Ian Random said...

Hell, you can even use sand in a 3d solar heated printer. Might be more useful for the 3rd world where any container is precious.

http://www.engadget.com/2011/06/26/solar-sinter-solar-powered-3d-printer-turns-sand-into-glass-ren/

 
At 7/24/2012 3:52 AM, Blogger Binh Nguyen said...

According to Richard Lynn, the average IQ of the Chinese is 105. average IQ of the white American is 96 , average Asian Indian is 81.

Chinese students ranked first in PISA 2009, US student 25th, Indian students 73rd (among 74 nations which took part in the test).

For innovation, according to WIPO, in 2011, the US still ranked first in international patent filling, Japan second, Germany 3rd, China 4th and South Korea 5th, but China is catching up very fast. India is very far behind.

These are some facts you American should know, or accept, before disscusing on matters like innovation, skills etc. Grouping China and India in 2012 just because they are poorer than the US is much like grouping South Korea and Ghana in 1950s, just because they shared similar GDP per capita.

 
At 7/24/2012 10:26 AM, Blogger VangelV said...

For innovation, according to WIPO, in 2011, the US still ranked first in international patent filling, Japan second, Germany 3rd, China 4th and South Korea 5th, but China is catching up very fast. India is very far behind.

These are some facts you American should know, or accept, before disscusing on matters like innovation, skills etc. Grouping China and India in 2012 just because they are poorer than the US is much like grouping South Korea and Ghana in 1950s, just because they shared similar GDP per capita.


Averages are not very meaningful. In absolute terms there are many very high IQ Indians and Chinese compared to a country like Canada or even the US because of the sheer numbers that we are talking about. And as you know India is not as homogeneous as Westerners think that it is. I would hardly expect that many of the poor rural ares to score well given the lack of proper diet that is necessary for proper child development.

The problem with India is not the stock of Indian people but the Indian government. Go to Africa or the Caribbean and you soon find that Indians are essential to local economies because they make up a disproportionate part of the merchant class.

When Idi Amin gave non-Ugandan Asians 90 days to move out of the country many of them, mostly Indian with Gujarati origins, wound up in the US with no money and few prospects. In two decades they wound up making up half the American motel and small hotel business. Do you really expect that people of below average IQ could build a dominant position in a business sector in such a short period of time? And if they could the importance of IQ as it pertains to successful business activity is overstated.

As for patents, the US registers so many more because the US patent office gives patents where none should be provided. Many companies use them as a way to skim profits from productive and useful businesses or as weapons against competitors. Patents do not help innovation; they stifle it.

 
At 8/03/2012 9:01 AM, Blogger VangelV said...

I found this very fascinating. Those that think the Chinese behind and not very creative might want to reconsider. Measuring the number of patents is not as important as the type of processes and advances that are being patented. I would say that the creation of an entanglement-based quantum router is a big deal. While we may be years away from practical applications the Chinese researchers may have taken us a very big step forward in our quest for quantum computing.

 

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