Monday
Apr182011
Designed Here, Made Somewhere Else
SteveSunday morning should be left to more interesting pursuits, but on another cold, windy day more like late November than mid-April, a portion of my Sunday was spent watching a C-SPAN2 talk recorded in February by Andrew Liveris, Chairman and CEO of Dow Chemical and author of the recent book - ‘Make It In America: The Case for Re-Inventing the Economy’.
The book (which I have not read yet, but will definitely pick up), focuses on the importance of the manufacturing sector, particularly the advanced high-tech manufacturing industries, to the short and long-term American economic prosperity. Liveris contends that manufacturing creates sustainable, and consistent value at a scale far surpassing most service industries, and that American institutions can’t simply be satisfied to cede the actual manufacturing of new and innovative advanced technologies to places like China and India.
The part of the talk that intrigued me the most was when Mr. Liveris discussed the common hypothesis that blames the relatively high labor costs in the United States for the continued flight of not only less complex manufacturing like clothing and textiles, but also the more advanced technologies like smartphones and solar panels.
Why thesis is wrong, or at least incomplete, is that it fails to account for the success in advanced manufacturing of other high labor cost countries like Germany, and it also ignores the significant structural issues in the American economy, (lack of coherent energy policy, widely differing state by state requirements, educational reforms that fail to materialize, etc.), that also contribute to individual firms’ decisions to move high value-add processes and manufacturing operations to foreign soil.
Apple is famous for the disclaimer is places on many (all?), of its products - ‘Designed by Apple in California, assembled in China’. While most of us read this statement and reflexively conclude that the ‘hard’ or ‘modern’ or ‘innovative’ aspects of the creation of say, the iPad, are still performed here in American, and that we should not be too concerned that the relatively less complex (and interesting), and more mundane assembly tasks are farmed out to what are certainly lower cost countries. Liveris wants us to think about this statement differently, for in his view shifting advanced assembly to China (or any other place really, but China is the one country he feels high-tech manufacturers should fear the most), is just the first step in a industrial capability evolution that only starts with contract assembly.
Assembly leads to invention. In other words, shifting assembly overseas leads to the development of local manufacturing plants to make product components, which are then developed and refined to integrate into more complex systems and products. Finally countries like China then build Research & Development centers and innovation hubs to better align the ‘design’ effort with the manufacturing effort. Essentially, when manufacturing of high-tech goes elsewhere, R&D will follow, and innovation will follow.
As Mr. Liveris wrapped up his talk, which was recorded at the Wharton Business School, a place well-known for feeding the major business consultancies and financial services companies with a steady supply of new recruits, he questioned, (and really sort of lamented), the shifts in the American business psyche that have come to place such an enormous premium on the allocation of capital, and the financial services industry that acts as the ‘middle-man’, in brokering the distribution of capital from those that have it, to those who seek it. As Mr. Liveris observed, certainly in advanced manufacturing industries, as both ends of the transaction come to be dominated by foreign interests, that leaves only the ‘broker’ role left to fill here in the USA.
And while he acknowledged the need for the financial services role, he challenged the Wharton students in the audience to think of manufacturing, and it’s associated design, development, and tangible benefits as an equally important, and certainly more noble set of pursuits than the Wall St. path. Sure, as Wharton grads you’ll likely make a lot of money, but as the middle man you’ll only serve the owners of capital, and eventually, just like iPads are ‘assembled in China’, eventually the services you offer will likely follow.
What do you think? If you are American, does ‘Designed in California, Assembled in China’ make you concerned?
Should it?
The book (which I have not read yet, but will definitely pick up), focuses on the importance of the manufacturing sector, particularly the advanced high-tech manufacturing industries, to the short and long-term American economic prosperity. Liveris contends that manufacturing creates sustainable, and consistent value at a scale far surpassing most service industries, and that American institutions can’t simply be satisfied to cede the actual manufacturing of new and innovative advanced technologies to places like China and India.
The part of the talk that intrigued me the most was when Mr. Liveris discussed the common hypothesis that blames the relatively high labor costs in the United States for the continued flight of not only less complex manufacturing like clothing and textiles, but also the more advanced technologies like smartphones and solar panels.
Why thesis is wrong, or at least incomplete, is that it fails to account for the success in advanced manufacturing of other high labor cost countries like Germany, and it also ignores the significant structural issues in the American economy, (lack of coherent energy policy, widely differing state by state requirements, educational reforms that fail to materialize, etc.), that also contribute to individual firms’ decisions to move high value-add processes and manufacturing operations to foreign soil.
Apple is famous for the disclaimer is places on many (all?), of its products - ‘Designed by Apple in California, assembled in China’. While most of us read this statement and reflexively conclude that the ‘hard’ or ‘modern’ or ‘innovative’ aspects of the creation of say, the iPad, are still performed here in American, and that we should not be too concerned that the relatively less complex (and interesting), and more mundane assembly tasks are farmed out to what are certainly lower cost countries. Liveris wants us to think about this statement differently, for in his view shifting advanced assembly to China (or any other place really, but China is the one country he feels high-tech manufacturers should fear the most), is just the first step in a industrial capability evolution that only starts with contract assembly.
Assembly leads to invention. In other words, shifting assembly overseas leads to the development of local manufacturing plants to make product components, which are then developed and refined to integrate into more complex systems and products. Finally countries like China then build Research & Development centers and innovation hubs to better align the ‘design’ effort with the manufacturing effort. Essentially, when manufacturing of high-tech goes elsewhere, R&D will follow, and innovation will follow.
As Mr. Liveris wrapped up his talk, which was recorded at the Wharton Business School, a place well-known for feeding the major business consultancies and financial services companies with a steady supply of new recruits, he questioned, (and really sort of lamented), the shifts in the American business psyche that have come to place such an enormous premium on the allocation of capital, and the financial services industry that acts as the ‘middle-man’, in brokering the distribution of capital from those that have it, to those who seek it. As Mr. Liveris observed, certainly in advanced manufacturing industries, as both ends of the transaction come to be dominated by foreign interests, that leaves only the ‘broker’ role left to fill here in the USA.
And while he acknowledged the need for the financial services role, he challenged the Wharton students in the audience to think of manufacturing, and it’s associated design, development, and tangible benefits as an equally important, and certainly more noble set of pursuits than the Wall St. path. Sure, as Wharton grads you’ll likely make a lot of money, but as the middle man you’ll only serve the owners of capital, and eventually, just like iPads are ‘assembled in China’, eventually the services you offer will likely follow.
What do you think? If you are American, does ‘Designed in California, Assembled in China’ make you concerned?
Should it?
