Gone Baby, Gone … Even From Mexico
March 13th, 2008
In response to my post, Corporate Strategy and the Speed of the Supply China, several people commented on their hope that said jobs might one day return to the US and/or they posited the question of why not Mexico rather than China so that goods could be moved into the US more quickly?
If only it were that simple. See this March 3, 2008 WSJ article, US Shoe Factory Finds Supplies are Achilles Heel.
This article beautifully highlights why said jobs, industry and manufacturing left the US and ain’t never coming back. The article discussed how a man with his heart in the right place tried to bring some manufacturing back to the US from China and he set up a shoe manufacturing plant in Florida, he did all that he could to make it work, yet in the end failed.
Why did he fail?
Well, at the end of the day, Chinese labor is cheaper, lots cheaper, than American (and even Mexican) labor, and many just don’t fully understand and appreciate how cheap it is in comparison to these other places. He could just not compete. Perhaps more importantly, the infrastructure needed to make a factory tick no longer exits in the US for most products and industries (and if it does not exist here, it sure does not exist in Mexico in many cases). Note that the term “infrastructure” does not just mean roads and UPS delivery — it also means parts, service professionals for machines, the willingness of a firm’s supporting suppliers to fill smaller orders, etc.
One reason China can offer a more competitive factory “infrastructure” is due to clustering, and we will discuss this in greater detail once we are in the road in China. This is where a number of firms in the same industry set up shop together, or, entire towns in China devote their existence to the production of one product (e.g., sock city, watch city, tie city, etc.). The synergies and efficiencies offered by such clustering are hard to beat.
For a number of products and manufacturing industries … gone baby, gone.
Entry Filed under: Pre-Departure, 2008 Student Blogs, Misc.
8 Comments Add your own
1. Jeff Mohr | March 13th, 2008 at 6:21 pm
That is an interesting point and gives a lot of credibility to the argument that they are gone for good. I always bought into China’s cheap labor as being the sole reason for manufacturing overseas. But there is no doubt that the clustering Dr. Carr points out would bring a huge advantage to anyone running a business in the area. In addition, I didn’t think of the other items in infrastructure such as service professionals and serving smaller orders as being a big part of the equation. Great informative post. Oh and if you haven’t seen Gone Baby, Gone, go rent it. Very well done although disturbing.
2. Brandi Eng-Rohrbach | March 15th, 2008 at 5:52 pm
Clustering has a lot of other inherent advantages. Some I can think of are:
1) Ideas and innovation are spread instantaneously.
2) Companies producing the components of products will also usually also set up shop there. This not only increases competition and lowers prices but also the time needed for transportation. This also enables a more reliable supply chain due the amount of vendors one can chose from and their proximity.
3)Trade institutions can be formed to push for favorable political initiatives in addition to creating and funding research.
4)Specialization into parts of production that one is particularly cost effective or better at than competitors.
5)A labor force which has many labor skilled and knowledgeable in the particular product made there.
Interestingly, I can only think of one place in the United Staes that has this sort of infrastructure and this cluster is the Silicon Valley.
3. Catriona Banks-Orosco | March 15th, 2008 at 9:16 pm
Being able to buy in small quantities can make a tremendous difference in the ability to start and maintain your own business. When sourcing fabric I”ve been frustrated by companies that will only sell in large volumes.
I know Mexico doesn’t have the infrastructure of China but it seems like there are many parts of Latin America that could benefit from following this type of development, especially clustering. I don’t see China’s infrastructure as forever standing in the way of any manufacturing coming back to North America. Lack of government support and incentive to build the kind of infrastructure necessary in neighboring countries will inhibit our ability to manufacture closer to home.
4. Glenn Hughes | March 17th, 2008 at 10:04 pm
It’s hard to believe that the U.S. is so greatly lacking in technicians to support machines. China definitely has the advantage over the States with regards to providing all the materials needed to produce products. Manufacturing in the Americas is not necessarily doomed, however it would take a large, highly cooperated network of people to put together a community that had the potential to be as efficient as the clusters overseas. Small start ups beware, its a highly competitive global business you’re entering into.
5. william jencks | March 18th, 2008 at 1:05 am
I just really don’t see the draw with manufacturing right now. Obviously it is impossible to compete with China in the current global economy unless you find people or robots to work for you for less than $.025 an hour, and have the capital to set up the infrastructure needed to produce mass amounts of merchandise. It will probably stay this way for a while, but as China develops and workers begin demanding higher wages and benefits, and as automated production methods gain popularity and decrease in price, I see no reason why production of many goods couldn’t move closer to home in places all around the world. Eventually the whole world will be developed (If we can manage to stick around that long), and shipping products these enormous distances will become inefficient and wasteful. It is true that this is a global economy but let’s not forget how big the globe is. In the short term it is stupid to try and compete with Chinese manufacturing unless you have some breakthrough or extenuating circumstances, but as China goes through its own version of the industrial revolution this will have to change… maybe in a hundred years, maybe in a thousand.
6. Chris Kirk | March 18th, 2008 at 3:49 pm
Very interesting post. It would make sense that as manufacturing of products is pushed overseas that the supplies for these good would follow - it is just something that I had never though about before. The concept of clustering makes perfect sense as it allows companies to get shared supplies quicker and at a lower cost giving the supplier economies of scale and therefore might be able to pass on savings to customers farther down the supply chain. These are only a couple reasons why once manufacturing has left the United States, it is hard to ever see it coming back. In the case of high end custom made goods like the shoes discussed in the article is made more costly and difficult based on the increased cost of supplies. I can’t think of any industry off the top of my head that might benefit from keeping manufacturing domestic - it will be interesting to see in the next decade how many industries are still manufacturing primarily in the United States - if any.
7. Brandi Eng-Rohrbach | March 19th, 2008 at 4:37 pm
For a different spin on this story, read about a Chinese manufacturer of refrigerators, Haier, that tried to start making some of their products here. You probably know them because they are huge in the mini-fridge market. These are the type that is commonly found in college dorms. They have found some advantages to re-localizing production and being more in touch with the markets you sell in. They also believed the could achieve cost savings in shipping due to the heavy weight of their products. See article here. Chinese Refrigerator Maker Finds U.S. Chilly
8. Nicholas Dominguez | March 20th, 2008 at 11:13 pm
What really caught my attention in this post was the idea of clustering. I have been looking into cluster developments for a while now since I was a City and Regional Planning undergrad. From a planning standpoint they are the be all end all goals of economic development. I have been witness to the financial clusters of Hong Kong not to say they are anything like the industrial clusters of mainland China but they are impressive. One important realization I came to was that availability of infrastructure is not the only catalyst for success. A cluster development allows for a focused combination of social, political and economic support structures that can prop up industry. I would argue that many industries in the US would benefit greatly from the development of clusters that could give them added value in order to combat competitive forces from China.
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