Globalization: Moving US Manufacturing Closer to the Brink, or to New Summits?
Signs of slow but steady recovery in manufacturing are being seen in
both the US and Europe, stimulating continued debate about the strength
of a global industry turnaround. In the US, sectors such as electrical
equipment, appliances and components, and fabricated metals are
continuing to grow, while consumer spending and discretionary purchasing
remains down, impacting segments such as furniture, food and beverage,
and even toy manufacturers. As a whole, it seems the closer a
manufacturer’s goods are to the end consumer, the slower the recovery.
Many in the US have bemoaned the fact that the US has “given away”
its manufacturing base -- outsourcing this work to lower-cost suppliers
in Asia, Latin America and elsewhere; maybe so, but there are two sides
to every story. The tough economic environment has driven many
companies to turn to outsourcing not just to cut costs, but to survive.
Over the past few years, US corporations facing increased competition,
ever tougher regulatory environments, and significantly rising health
care and benefit costs have had to make tough decisions. The choice to
outsource for many wasn’t merely an option, it was an absolute
necessity; many would not be here today if they hadn’t. But remaining
competitive in manufacturing has been about more than merely shifting
In 2008, the cost to manufacture in the US was only 17.6% higher than
the average in nine other industrial countries, including Canada,
Mexico, and China, according to the Manufacturing Institute and the Manufacturers Alliance/MAPI
-- down from 31.7% in 2006. While rising labor costs in developing
countries was a part of the equation, a key factor in US manufacturers
reducing the cost delta was the continued investment in
productivity-enhancing technologies. It was clear that with ever
increasing global competitiveness, US manufacturers had to reduce costs,
or lose their markets forever.
A quick scan of new Epicor manufacturing customers inked over the
last quarter shows strong growth in emerging international markets
including China, the Middle East, Latin America and Central and Eastern
Europe. What we note is that these are not just US or European
companies outsourcing -- there is also a strong mix of local companies
expanding to meet the needs of local markets, as well as US companies
building plants to meet growing demand (locally) in these markets.
This trend seems to align with the industry think tanks reporting
that businesses are ramping up operations offshore (albeit slowly) to
meet growing global demand. At the same time, while this demand
continues to build, manufacturers can’t sit by and expect a return to
“normal business” and growth.
For the next few years, the “new normal” is going to be tight markets
with relentless, global competition -- emerging markets are developing
significant manufacturing competencies seemingly overnight (Vietnam, for
To compete, business needs to be more responsive than ever to its
customers and markets. Flexibility and adaptability will be key (along
with the givens of best quality, price, and performance). We should
not expect any changes in the near term (regardless of administration)
that ease regulatory compliance, or that universal healthcare will
suddenly make our employees more productive.
As before, we need to look at how technology not only can drive
dramatic shifts in productivity and profitability (as well as long term
sustainability), but how it can change our fundamental approach to how
or where we do business. While some companies may see technology as
simply a tool for increasing efficiency, the smart companies see more
than that; they see it as way to evolve their business models to focus
on what has always been the strength of the US (and European) industrial
sectors -- innovation.
Posted by John Hiraoka, Executive Vice President and Chief Marketing Officer, Epicor