Apple’s complete dominance of the mobile communication and computing device market has left many observers of the American Tech Industry scratching their heads. Sure, America houses countless designs and technologies, and sure it employs thousands of people but the actual manufacturing employs a lot more people overseas. The question is “Can America benefit more if both manufacturing and design were done in the United States?”
This is hardly a question for Apple. Many other companies can fall under the same scrutiny, foremost among these being Hewlett Packard, Dell, and other computer designers and manufacturers that are huge market players in the world. The reasons for moving overseas are not a big mystery. It is not only cheaper to manufacture overseas because of lower labor cost, but certain pools of labor like midlevel engineering are just not there in the United States — at least not in prices that are viable in the eyes of many American companies. The price of a midlevel engineer in the United States is way more than the price of a similar engineer in India, Taiwan, or China. Most importantly, the absolute numbers of the talent pool is just too small in the United States. So, based on a combination of price and supply issues, many of the big-named American tech brands are heavily reliant on Asian factories.
This troika of affordable and relatively abundant midlevel engineers, and networks of other low-cost suppliers is a very hard combination to resist. It’s no surprise that Apple iPhones, iPads, iPods, HP laptops, Dell laptops, servers, and another computer equipment are made overseas. However, a small group of observers are saying that this does not necessarily have to be the case. It is entirely possible, in their view, for tech brands to proudly sport the “Made in America” label once again. How did they come to this conclusion? One word, Japan. In the 70’s, car manufacturing in Japan was strictly a Japanese affair. Starting in the late 80s and onto the 90’s, several Japanese companies started opening factories in the United States. What happened?
The first key to this equation is that the price of the yen grew so strong that it put a lot of cost pressure in Japan-based factories. It just became more expensive to manufacture in Japan because everything is in yen, and yen is more expensive in dollar. Therefore, America became much cheaper than Japan. So, one key push is the currency situation. How would this play out in tech manufacturing?
The US has been complaining over several years that the Chinese yuan is undervalued compared to the dollar. If the Chinese government policy changes and allowed the yuan to change, the yuan will appreciate quite a bit. Due to many factors and huge amount of importations of goods from China, expect the yuan to post robust gains. This currency valuation might push many US tech manufacturers to consider other locations other than China because of the rising cost of yuan against the US dollar. Due to this change, the American manufacturing might become a little bit more attractive once again.
There are other factors in play aside from currency valuation. These key factors involve political considerations. For example, China insisted that if you are going to sell in their market, you have to have a factory producing at least some parts of the product that you’ll be selling in the market. This arrangement is enforced by legislation, by tariff protection, and some tax breaks and subsidies. So, in a combination of carrot and steak, many Japanese manufacturers moved some of their operations to the United States to service the American market.
Most recently, Brazil employed the same tactic, and Foxconn – the hardware manufacturer of the Apple iPhones, iPads, and iPods – started a plant in Brazil to service the Brazilian market. Some proponents of moving tech manufacturing back to America argue along these lines. The problem with this is that America might lose more than it can gain because America’s strength has always been in higher value labor and capital markets. Truth be told, there’s more money to be made in those segments than in low-wage and low-value labor products. So, it’s a delicate balancing act. However, the experience of Japanese auto manufacturers in the United States thus point to a possible situation where American tech products can be made at least partly in the United States. There is also an added advantage by having these products made in the United States because of faster delivery time and faster time to market. These are core competitive advantages that some companies might find irresistible.
Still, there are quite a few more components in the mix that need to be properly tuned for it to make sense. Keep in mind that Chinese manufacturing is not just beating American manufacturing because of low labor cost. In fact, an increasingly large share of process and production patents being granted all over the world is coming from China; and this is not surprising because the low-cost manufacturers first gained an advantage through lower labor cost. Then, they cement that advantage by automating and also decreasing their labor cost even further through better production processes, better quality control, and higher levels of automation. This played out in Taiwan and Japan and is playing out in China. As you can see, China’s value as a manufacturing partner is not just in terms of lower labor cost and a greater supply of midlevel engineers, but also in doing its job better. So for “Made in America” label to appear in US tech products again, proponents need to think better out of the box instead of using the same old anti-competitive solutions that might just backfire.