http://knowledge.wharton.upenn.edu/article.cfm?articleid=3082
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"Everyone thinks of changing the world, but no one thinks of changing himself." (Leo Tolstoy)
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In an article published this week in "K@W," Hal Sirkin (senior partner and managing director of the Boston Consulting Group) is quoted as saying that, during this decade, two to 3 million manufacturing jobs will come back to the U.S. "because of the fundamental shift in economics between China and the United States." Sirkin sees this as adding "100 billion" in economic growth to the U.S. by 2020.
And what is the "fuel" for that process? Answer: "...the rapidly declining divide between Chinese manufacturing wages and those in the U.S." In 2000, U.S. wages were 22 times higher than those in China "but by 2015, wages in the U.S. will only be 4 times higher."
K@W and Sirkin note further: "Adjusted for productivity, the differential shrinks even more...In the Yangtze River Delta, the epicenter of China's skilled manufacturing workforce, the effective wage rate will be 61% of U.S. wages by 2015. At those levels, it makes sense to return manufacturing of a wide range of goods, with moderate levels of labor content and high logistics costs to the U.S. Sirkin argues that, because Chinese wages are rising so rapidly, the U.S. will not only win back those jobs, but it will also be able to retain a lot of the jobs even after U.S. wage rates rise in the future."
Overall, re-shoring has a tendency to make sense for "bulky goods" which naturally incur higher transportation costs: "As manufacturers extend their supply chains ever deeper into remote areas - such as inland China and more remote parts of Southeast Asia - they struggle to overcome the inefficiencies and gaps that raise the cost and uncertainty of importing finished goods to the United States in a timely manner."
What I like are the numbers. GE has put the concept together so it works for them and this K@W article highlights what they've done.
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K@W is great. Much thanks to you, CH, for introducing your students to this continuing knowledge leader.
ReplyDeleteFisher is definitely on to something. These changes occur on a product-specific basis. Such a major trend will probably lead to an Alan Blinder equivalent analysis of products as he did for jobs. Cohen notes the infamous pursuit of profit. In reality, any organization, or person, will seek to maximize achieving its goals. Often this means outsourcing. However, the future will likely behold a new age of outsourcing, more clearly optimized due to years of information gathering. Smartsourcing? Rightsourcing (similar to rightsizing)?
How about we find the right word or catchphrase to define this new generation of supply chain strategy? Sirkin reads more like advertising than a pursuit of truth. He has money to make right? The entire article talks quite a bit about adding this or that, but not enough about net flows. Jobs are always being added. How many are being lost? What is the net effect? Furthermore, the article does not cite sources on the numbers. Numbers are pretty when they support an argument we already support, but numbers without disclosing methodology and data lead to crisis. Logistical and productivity challenges is vague too. This all must harbor some truth. This is Wharton after all. They have a reputation to sustain.
Anybody know the details of the Chinese social welfare and health care system? I actually spoke with someone who lived in China for more than a decade, currently working on an MD at UT Southwestern. He stated that Medicaid and Medicare equivalents do not exist in China. When asked about developing a hospital or franchise of physician practices, he replied: only to serve the rich, since they have commercial insurance. Otherwise, the pay would not suffice. I doubt social security exists, not into researching that right now. China is a nation of savers for good reason. Sadly, China feels they need aircraft carriers and stealth fighters/bombers instead of more social/healthcare reform. Maybe they can help police the world as so many other countries find necessary. Iranian top management wants to nuke something. It is kind of funny actually. I can see some of them now contemplating... if only we had a nuke, all our problems would be solved. Hahaha. A bit far from truth but not so much... A chance for unity? Perhaps we can become better friends with a common enemy.
Again, taxes and regulations. The article assumes the U.S. environment effectively competes with China. Like Fisher stated, this trend will remain product-specific. The article leaves the readers to explore the total costs. Readers from all industries will assess their product lines and call Sirkin for more info.
The GE example and hinting of Dow Chemical are weak. These likely serve as tests from which others will derive best practices or at least keep their eyes on the outlook for comparable situations.
On a different note, why can't we think of all people as people? Why must it always be us versus them? If we can persuade the Chinese, and other emerging economies for that matter, to light up that hearts with our values, goals, and interests, perhaps we can start acting as one instead of rivals. I grew up around friends from all cultures, creeds, and customs. Maybe I just feel closer to all of them than the average person. Leaders should start plotting over the next 100 year to guide how everyone can live happily and healthily at a reasonable standard of living while working a reasonable amount of time. That is the dream right? Is that not the goal? We all came from the same flesh of our ancestors. Divided by history of stupidity, we need the best minds to bring it all back together. Only time will tell how all this fits into the global evolution of value chains.