Jeffrey Immelt: Outsourcing Based Only on Labor Costs is Becoming an Outdated Business Model
Jeffrey Immelt, CEO of General Electric, in the Harvard
Business Review article “On Sparking an American Manufacturing Renewal”:
"One thing is clear: Outsourcing that is based only on labor
costs is yesterday’s model.
Today at GE we are outsourcing less and producing more in
the U.S. We created more than 7,000 American manufacturing jobs in 2010 and
2011. Our success on the factory floor
rests on human innovation and technical innovation – the keys to leading an
American manufacturing renewal. When we
are deciding where to manufacture, we ask, “Will our people and technology in
the U.S. provide us with a competitive advantage?” Increasingly, the answer is yes.
Engineering are hands-on and iterative, and our most innovative
appliance-design work is one in the United States. At a time when speed to market is everything,
separating design and development from manufacturing didn’t make sense.
Complex trade-offs have always been involved in location
decisions, but as these trade-offs have shifted, around 2008, we came to the
conclusion that outsourcing was quickly becoming mostly outdated as a business
model for GE Appliances.”
11 Comments:
'"One thing is clear: Outsourcing that is based only on labor costs is yesterday’s model'...
Considering the shrinking value of the dollar that makes sense to me...
"Outsourcing that is based only on labor costs is yesterday’s model'.."
Crony capitalism is Immelt's current model.
paul-
that was my precise thought as well.
immelt, buffet, pickens, etc have all gone that way.
not a pretty thing.
Regardless of the perfidy of Immelt, Buffett, Pickens, Long Term Capital Management, Enron, Lehman Bros., GM, or nearly the entire cast of grifters who populate Wall Street and Washington DC (including the USDA and Defense Department), the sentiments expressed bear pondering.
Try to separate the message from the messenger, and you will have more success.
If true (and I think it is), what does this say about Fed policy?
Can we sustain an American manufacturing renaissance if the dollar should rise?
I doubt it.
The "strong dollar" policy, and the dollar's role as an international reserve, have helped destroy much of our manufacturing base.
Maybe we can build some of it back--not with subsidies, not with government help of any kind, but with a dollar that helps domestic industries get onto a level playing held.
I sure hope so.
Appliances... Appliances ....Appliances... That is what he said.
What percentage of the business does that represent??
Guess what... all the commoditized businesses will continue to move overseas. It's the value add product that will be built here because labor as a percentage of VALUE priced goods and services is of little significant.
"One thing is clear: Outsourcing that is based only on labor costs is yesterday’s model.” - Jeff “rent seeker” Immelt
Check me on this, but you never compare “labor costs”, the comparison is “unit labor cost”. GE, where we bring fallacy to life!
GE is a basket case, and has become so under Immelt's tenure.
We can even show this using Immelt's touted GE Appliances division. If you want to see just how dependent the company has become upon government contracts, subsidies and protections for its revenue, look no further than the front of its latest microwave ovens, where you'll find the "MyPlate.gov" button.
What does this mysterious button do? Can you figure it out without doing some research? Couldn't the company's designers devise a more intuitive way of communicating what it will happen if you press it? And just what kind of results will you get out of that GE appliance if you use it?
Maybe you can figure it out from the buttons next to it - here's a picture - you can clearly see it's right under the Popcorn, Reheat, Family Snacks, Soften, and Steam buttons....
Would it be fair to suggest that GE's reliance upon government assistance for its revenue might perhaps be a better explanation for its presence than, say, detailed market and engineering performed by GE Appliance's non-outsourced "human and technical innovation" staff?
When might we expect "milking government assistance for competitive advantage" to become the next outdated business model for GE?
When might we expect "milking government assistance for competitive advantage" to become the next outdated business model for GE?---Ironman
Hey, it works for agriculture and defense contractors---why not GE?
"...look no further than the front of its latest microwave ovens, where you'll find the "MyPlate.gov" button"...
Now that's funny! Good find ironman!
This sort of begs the question when will GE microwave ovens come out with the Supplemental Nutrition Assistance Program, or SNAP button?
Immelt: "One thing is clear: Outsourcing that is based only on labor costs is yesterday’s model."
No manufacturer or service company ever outsourcing decisions based solely on labor costs.
Corporate finance guys are adept at making cost comparisons which include all costs, present as well as future, when making any sourcing decision. Jeffrey Immelt knows that. His statement may be an attempt to put labor pressure on his competitors who have not invested as much capital in U.S.-based factories.
Taking advantage of global cost-reduction opportunities was yesterday's business model and will be tomorrow's business model as well.
Labor is just one factor in the outsourcing of jobs their are many other reasons for outsourcing besides labor costs.
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