Response Paper - ‘Made in USA’
The article ‘Made in the USA’ On The Rise As Manufacturing Costs Drop by Moodley (2012) is an interesting compilation of Boston Consulting Group and other empirical studies on the newest trends in manufacturing and production operations across the globe. The argument that the article is trying to make is that we are moving towards the new era, where previously clear and well established practices of labor outsourcing to less cost-intensive countries set the dynamics of the international business environment. The core of the author´s argument is the statistics that reflect current trends of international companies, such as Toyota, American Airlines, Airbus and other corporations to shift their production to the US.
A lot of attention was given to the recent issues that the country is facing in regards to its trade deficit. These studies and economic analysis, however, leave without attention the isolated performance of the US export operations. According to the BCG, for the past eight years the US export was growing seven times faster the GDP of the country. Cost comparison of production operations in developed European countries illustrate that the US offers on average 18% saving on operational costs, comparing to France, Italy, Germany and other states.
The point that should be made at this stage is that cost in the scope of company´s production and manufacturing element should not be seen as pure financial benefit coming from direct saving on labor. This element in isolation will compromise the understanding of the total supply chain and opportunity costs of such multinational corporations. Moodley (2012) takes as an example aircraft manufacturing by such companies as American Airlines. For a single aircraft delivery, supply chain constructs take into consideration such element as production cost, delivery times, and distribution cost and relocation expenses. By shifting production to Alabama region, the company will still continue with slightly high cost of production, but will benefit from savings on all other cost constructs. Some other examples, presented in the case, open discussion around benefits of production outsourcing to Asia and highlight the importance of lead times and storage operations in the total supply chain costs of the companies. The article references Williamson that argues that previous level of saving that multinational corporation could achieve through production outsourcing to China could leverage the downside of extremely long lead-times for the product. Indeed, today, labor and production costs, adjusted to productivity make in-house production in the USA much more viable, given the benefits of reduced risk of delays, shipment ad transportation costs as well as total lead-time for final material. Companies like Rolls-Royce and Toyota are some of the pioneers that already realized this shift of economic interests and moved their production to the US.
What drives the cost of production in the US down? To answer this question it is essential to understand the macroeconomic components of this occurrence. First of all, the role of the fiscal and monetary policies is the strongest cause for the beneficial position of the US export, making actual export operation significantly cheaper than Europe or even Asia for this matter. Secondly, productivity and economies of scale, driven by the inflow of production operations to the US allows relative reduction of costs under the basic law of economies of scale. The potential of the country, predicted by BCG is also expressed in a number of job opportunities that can be created by the shift of production between China and the US. The estimates from the consulting group demonstrate the potential of 2-2.5 million factory jobs and, consequent reduction of unemployment rate down to 4.5% from current 7.5 level. Additional support to the argument on the internal economic development is set by the opportunity to bring additional value of USD$ 70-150 in export, emanating from the shift of production from various locations across low-cost countries by large European corporation.
It is important to emphasize that the discussion around “Made in the USA” does not limit the expectations of global business by solely shifting back the production of the US-based companies. The analysis reveals the potential of the country and growing attractiveness of its internal economic environment for production outsourcing. This trend already evidences shifts from major European corporations and the benefits coming from supply chain costs and reduction of lead-times will continue playing tremendous role in development of the US production sector through growing the portion of European exports.
The article provides an overview of current discussions emerging in academic and business circles and shares several opinions from leading specialists on the country´s economy. The arguments presented in the work, allow understanding and development of the ideas to support author´s position. The accuracy of the BCG forecasts on aggressive export growth and production shift to the US, however, remains uncertain as it a number of external factors and reaction from the developing countries will continue changing the shape of this new trend. International business environment is going through global re-evaluation of current operational values and diminishing gap between labor cost in developed and developing countries is just one contributing construct of the potential emerging solutions. One should take into consideration the challenges for agricultural production and companies involved in food industry in general, such as Starbuck or Nestlé that cannot take an advantage of operational shift due to environmental limitations. With that, one could argue that these companies, playing tremendous role on international business and social arena will contribute towards changing the mentality and strategy of outsourcing.
References
Moodley (2013, August). ‘Made in The USA’ On The Rise As Manufacturing Costs Drop. CNBC News. Retrieved 31 January 2014, http://www.nbcnews.com/business/made-usa-rise-manufacturing-costs-drop-8C11022215
