00:00:05
uh I'm engaged now in this uh very
00:00:07
ambitious research project a
00:00:08
benchmarking research project with a
00:00:11
Consortium other universities to address
00:00:14
three fundamental questions about the
00:00:16
sourcing of manufacturing on a global
00:00:19
scale we're interested in a what are
00:00:23
companies doing where are they sourcing
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manufacturing are they changing the
00:00:27
locations the countries where they're
00:00:29
sourcing
00:00:30
manufacturing years past many went to
00:00:34
China and low labor cost countries in
00:00:36
Asia and we've seen changes in relative
00:00:40
labor costs and there's been predictions
00:00:41
that we'll see an immense amount of
00:00:43
reshoring and yet on the other hand we
00:00:45
see major restructuring going on and so
00:00:48
there's confusion as to what in fact
00:00:50
companies are doing second is why
00:00:53
companies doing it what are the main
00:00:55
reasons for doing this and is there some
00:00:58
dominant reason like labor cost or
00:01:00
technology or does it depend on exactly
00:01:03
where they're going who they are what
00:01:05
technology and the third which is the
00:01:08
hardest to answer is what is going to be
00:01:11
the impact of this in terms of jobs in
00:01:14
terms of economic efficiency in terms of
00:01:16
growth and market share so that is what
00:01:18
we're trying to address to give it a
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sound empirical basis by benchmarking
00:01:24
leading companies all over the world and
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asking them based on the actual
00:01:28
decisions that you have made in the last
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two or three years affecting the sh the
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sourcing and Manufacturing tell us what
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you've done why you did it and what the
00:01:38
impact either was or expected to
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be couple of take takeaways from our
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research number one there is an
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unprecedented amount of restructuring
00:01:51
going on companies are addressing the
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question of how and where to produce
00:01:56
products and they're opening factories
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they're closing factories they're
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shifting employment so there's just been
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a lot of change going on uh number two
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that change is hap is not in One
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Direction it's not everybody reshoring
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back to the US or to Europe it's not
00:02:14
everybody offshoring again to Asia or to
00:02:18
China uh South America Eastern Europe uh
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you know every part of the world is
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engaged and we see companies making a
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range of decisions for what seems to be
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a variety of reasons so what is there's
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a lot of change but it's a very
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complicated picture so we need to
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understand where where it's happening
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and why it's
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happening first of all it seems pretty
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clear that predictions of wholesale
00:02:50
reshoring back to you know Market
00:02:52
related countries Like Us Canada Europe
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is not happening on a large scale it is
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happening and in selected Industries you
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know it's it's a major thing but just as
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much as companies are returning there
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are other situations where companies
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continue to Offshore either to Asia or
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to other parts of the world so that is
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number one headline that it's not a
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simple
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Flowback there's a complicated pattern
00:03:22
of flows that's occurring some are
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leaving some are coming some are going
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to different locations I'd say that was
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the main
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observation the other thing is the we
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asked for the the the drivers of these
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decisions and we we offered a variety of
00:03:39
possible choices so it's not just labor
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cost is it access to Market is it worry
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about intellectual property is it
00:03:46
government incentives is it Technology
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robotics automation is it access to
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labor market we had about over 20
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possible different factors and we ask
00:03:57
companies we had a very unique way of of
00:04:00
pursuing this in the Benchmark it's very
00:04:03
difficult to ask a
00:04:05
company the question where should you be
00:04:08
producing your product just think about
00:04:10
that that's a very complicated question
00:04:13
it involves all parts of the company
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there are many players involved and the
00:04:19
decision is companies make multiple
00:04:21
decisions and so we saw companies were
00:04:23
sometimes doing what look like
00:04:25
contradictory things while they were
00:04:27
going in One Direction they were also
00:04:29
going in the other direction and so we
00:04:31
decided that the only way we could get a
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handle on this was to use as a unit of
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analysis the decision what decisions
00:04:39
have you made give us examples of
00:04:41
decisions and explain to us why you made
00:04:44
that decision and so our observation is
00:04:46
based on a sample of decisions drawn
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from these companies which is a very
00:04:51
different way of doing a benchmark
00:04:53
instead of asking the company what are
00:04:55
you doing what are you thinking what are
00:04:57
your what are your you know your
00:04:58
priorities were saying you made a
00:05:00
decision tell us why you made it and
00:05:03
that gave us the ability to ask much
00:05:06
deeper and more nuanced questions and we
00:05:09
learned a lot from
00:05:14
that so I don't think I was surprised
00:05:17
that reshoring was dominant other people
00:05:19
have noticed this already and there you
00:05:21
know there have been Publications what
00:05:23
surprised me was that companies were
00:05:27
making often times what seemed seem to
00:05:29
be opposite decisions I'm going to go to
00:05:33
China I'm coming back from China same
00:05:37
company simultaneously making what seem
00:05:41
to be opposing decisions and when you
00:05:43
ask them why they would give the same
00:05:47
reasons it's because of labor cost it's
00:05:49
because of Market access it's because of
00:05:51
this and that and this at first
00:05:54
surprised us and then we thought about
00:05:56
it and said well no we understand this
00:05:58
because you know this is an area you
00:05:59
know that has been studied we have
00:06:01
modeled Global Supply Chain strategy
00:06:03
decisions for a long time you know I've
00:06:06
worked in this problem over the
00:06:07
years and what it it came the conclusion
00:06:11
it's not an easy conclusion to to maybe
00:06:14
Express but companies seem to be going
00:06:17
through
00:06:19
very complex or at least involved
00:06:22
tradeoff and risk analyses they're
00:06:24
taking into account multiple factors and
00:06:27
depending upon what is dominant in a
00:06:30
particular case for a particular product
00:06:33
it could push them in one direction or
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the other direction they're doing all
00:06:37
these different things because they're
00:06:39
evaluating these decisions and they're
00:06:41
making tradeoffs because they can no
00:06:44
longer view it as a no-brainer they have
00:06:46
to use their brain they have to analyze
00:06:49
this problem and so what I saw which I
00:06:51
think it was surprising and I think
00:06:53
gratifying that there the level of
00:06:55
analysis that seems to be going on is is
00:06:58
actually quite deep
00:07:03
well I think the the main misperception
00:07:06
is there is no one dominant reason and
00:07:08
you know the one that everybody talks
00:07:10
about is labor cost you know our labor
00:07:13
costs are are not going up and therefore
00:07:16
you know this is going to drive
00:07:18
everybody back that was that a lot of
00:07:20
people have proposed that another one is
00:07:24
it doesn't matter what labor costs are
00:07:26
because everything's going to be
00:07:27
automated so the robots are going to
00:07:29
make the product it doesn't matter what
00:07:30
the human labor cost is um so I think
00:07:34
that we found that that is it's not that
00:07:37
simple another thing that surprised us
00:07:40
is that the places like China and Asia
00:07:44
and parts of South America have become
00:07:47
very attractive not just because of low
00:07:49
labor costs but because of high quality
00:07:52
because of access to markets that seem
00:07:54
to be a major driver a lot of companies
00:07:57
are going into China not so much because
00:07:59
they want to save money but because they
00:08:01
want to have access to that huge market
00:08:03
and the only way they can have effective
00:08:05
access is to be there on the ground so
00:08:08
you know these are all valid reasons and
00:08:10
once you look at them it doesn't
00:08:12
surprise you that this is happening but
00:08:14
it's not just chasing a low labor cost
00:08:17
or getting rid of Labor and using robots
00:08:20
it's not that simple and what that some
00:08:23
of these developing countries are
00:08:25
attractive for reasons like quality and
00:08:27
Market access which we you know nor
00:08:29
don't hear about so
00:08:33
much well I think that uh the this this
00:08:38
wave of restructuring that is definitely
00:08:41
occurring I mean every day you see press
00:08:44
releases from companies saying we've
00:08:46
shifted our production from A to B from
00:08:49
country A to B this is happening and
00:08:51
it's continuing to happen and
00:08:53
governments are continuing to to put
00:08:56
pressure on companies to bring job jobs
00:08:59
home to bring activity home and and the
00:09:02
stakes couldn't be larger and the issues
00:09:04
have become more and more focused and I
00:09:08
think so I think that this problem not
00:09:11
that it has ever gone away you know it's
00:09:13
always been a part of overall strategy
00:09:16
is become you know is going to continue
00:09:18
to be with us and as we see technology
00:09:20
developing as we see markets evolving as
00:09:24
we see different labor forces going
00:09:26
through different demographics and
00:09:28
different
00:09:29
uh you know having different prices uh
00:09:32
that companies are going to have to be
00:09:33
on an ongoing basis evaluating these
00:09:36
decisions and be prepared to make
00:09:38
changes and I think that's the main
00:09:40
takeaway at a practical
00:09:46
level well I think one of the most uh
00:09:49
publicized stories has been the General
00:09:51
Electric story having to do with
00:09:53
Appliance Manufacturing in Kentucky so
00:09:56
um you know not so many years back G
00:09:59
decided to more or less shut down that
00:10:01
activity at Appliance Park which was the
00:10:04
the major manufacturing center for
00:10:07
appliances this is the white goods
00:10:09
appliances refrigerators stoves things
00:10:11
of that sort and um shifted it overseas
00:10:15
to Asian
00:10:16
countries and they announced with great
00:10:19
Fanfare that they were I think going to
00:10:21
invest a billion dollars in reopening
00:10:24
those plants and hiring American workers
00:10:28
and reshoring so it was one of the major
00:10:32
examples of the reshoring phenomenon and
00:10:35
things have not gone so smoothly there
00:10:38
was a recent article I think in the
00:10:40
Sloan management review uh by professor
00:10:43
shei of harvon or yeah I think with slow
00:10:45
management review evaluating you know
00:10:48
the bumps in the road that g has
00:10:50
encountered in trying to do that uh it's
00:10:53
not so easy to find skilled workers
00:10:56
American workers don't want to work in
00:10:57
factories anymore when they hired them
00:11:00
after 3 days they had to fire them
00:11:01
because they said this is what you want
00:11:03
me to do I don't want to do this so they
00:11:05
had an enormous
00:11:06
turnover uh people aren't trained to
00:11:09
think that way anymore so I think that
00:11:13
um will we ever go back to where we were
00:11:17
I don't think so but at the same time
00:11:19
you know we have new technologies and
00:11:21
new products and New Opportunities so I
00:11:26
I'm not pessimistic about the
00:11:28
opportunities for the future but they're
00:11:29
not going to be based on what we did in
00:11:31
the past and so the G story is quite
00:11:33
instructive they had trouble finding uh
00:11:38
skilled workers retaining those workers
00:11:41
there was a big issue of of uh labor
00:11:44
cost the union made major concessions
00:11:46
that they could hire people to enter at
00:11:49
PRI at wage rates that were lower than
00:11:51
they normally would have required
00:11:52
otherwise it wouldn't have worked and
00:11:54
even in spite of that it you know it's
00:11:56
been it's been a tough go so I think
00:11:58
that that that's one instructive example
00:12:02
that it's not so easy to pull this off
00:12:04
and there are a lot of issues to look
00:12:09
at okay so you take your iPhone from
00:12:12
Apple uh I labor cost is clearly under
00:12:17
10% and so you could argue it doesn't
00:12:20
really matter what happens to the labor
00:12:22
cost in China or Thailand with respect
00:12:25
to their cost of the product it's more
00:12:27
important that they can de velop new
00:12:29
products and have access to flexible
00:12:32
high capacity highquality manufacturing
00:12:35
and that the the actual labor cost is
00:12:37
it's not that it's insignificant but
00:12:39
it's not the most important
00:12:41
factor on the other hand take the
00:12:44
apparel industry which is labor
00:12:46
intensive to this day we see Chinese
00:12:49
companies Outsourcing to Vietnam because
00:12:52
labor costs in Vietnam are lower than in
00:12:54
China we see Chinese this is what we've
00:12:57
seen in our surveys we actually have you
00:12:59
know results that Chinese companies are
00:13:01
going from the coast where cost of
00:13:03
living and wages are high to the
00:13:05
interior where it's cheaper so they're
00:13:08
not leaving the country they're just
00:13:09
going to another place and so it depends
00:13:13
very much on what the product is what
00:13:16
the cost composition is what type of
00:13:18
technology and these are the things that
00:13:20
we found in our survey that these kinds
00:13:22
of factors either for the product or the
00:13:25
technology are significant and different
00:13:29
answers therefore are generated in
00:13:31
different Industries and some go this
00:13:33
way and some go that way labor cost may
00:13:36
drive me if I'm in an apparel industry
00:13:38
but if I'm in a high-tech industry not
00:13:40
so much on the other hand take Aerospace
00:13:43
and defense another industry we looked
00:13:45
at there are companies like uh
00:13:48
Rolls-Royce that only makes products in
00:13:50
the highest labor cost countries in the
00:13:53
world the US Great Britain and Norway
00:13:57
you can't find countries in the world
00:13:59
with higher labor costs and that's where
00:14:01
they make their engines talking about
00:14:03
aircraft engines and Marine products and
00:14:07
they'll argue that that's where they
00:14:09
have access to the skilled labor and
00:14:11
that they couldn't find the labor that
00:14:13
they needed in other countries even if
00:14:15
the wages are lower so it may not so
00:14:17
labor is also probably not a major
00:14:20
component of the cost of building an
00:14:22
aircraft engine but you you got to have
00:14:24
skilled labor it becomes essential so
00:14:26
again it illustrates how the tradeoff
00:14:28
come into play and how industry and
00:14:31
product and Technology factors become
00:14:33
very
00:14:37
important so one interesting thing we
00:14:40
observed in our survey is that companies
00:14:43
in capital intensive Industries in some
00:14:45
cases are moving their production into
00:14:49
China and to some that may be viewed as
00:14:52
counterintuitive because you know you
00:14:54
think of going to China and Asia as
00:14:57
places you know where labor costs have a
00:14:59
bigger or more or more
00:15:02
dominant and that Capital intensive
00:15:05
products with high in you know Advanced
00:15:08
Technologies aren't the places that you
00:15:10
would go and so part of the explanation
00:15:13
for that is you can no longer view
00:15:16
countries like China or or Brazil for
00:15:19
that matter or countries in Eastern
00:15:22
Europe as being places where you have
00:15:24
unskilled labor they have highly skilled
00:15:27
labor and they're very anxious to expand
00:15:29
into these high-tech Industries China is
00:15:32
investing billions to build up its
00:15:35
Aerospace and defense Industries
00:15:37
commercial aircraft they're build you
00:15:39
know they're they're they're competing
00:15:41
directly with Airbus and Boeing for
00:15:43
regional Jets at least they've announced
00:15:45
you know that they're going to do that
00:15:47
and so there are highly skilled labor
00:15:51
forces now in places like China and uh
00:15:54
they may be cheaper and they may be just
00:15:56
as good so we can no longer you know
00:15:59
fall back on this comfortable notion
00:16:01
that well you know when it comes to
00:16:03
these types of jobs we can't find them
00:16:05
even though some companies will tell you
00:16:07
like Rolls-Royce we have to be in these
00:16:09
highly developed countries because
00:16:10
that's where we find our labor some of
00:16:12
their competitors don't agree with that
00:16:15
you know Sikorski is a company that has
00:16:17
gone the other way you know and so it's
00:16:20
just fascinating how in the same
00:16:22
industry with the same products and the
00:16:23
same Technologies some will choose to go
00:16:26
in One Direction and some will choose to
00:16:28
go in the other Direction so that
00:16:30
suggests that their local evaluation of
00:16:33
the tradeoffs might be different they
00:16:34
may have other factors other constraints
00:16:37
other reasons for making those
00:16:42
decisions well Apple's another
00:16:44
interesting case in point uh they have
00:16:46
announced and have indeed started
00:16:48
producing some computers back in the
00:16:51
US remember in the when they started
00:16:54
they had one Factory in California and
00:16:56
then they built a second Factory in
00:16:57
Texas
00:16:59
and then they went you know they
00:17:01
expanded but you know uh and they would
00:17:03
they would argue that they were you know
00:17:05
an American-made product even though 90%
00:17:07
of their cost of goods was imported
00:17:09
Parts even then so uh most of Apple's
00:17:15
products are made
00:17:17
offshore and for all the reasons we we
00:17:19
discussed but yet they have done this
00:17:23
project where they've taken certain
00:17:25
high-end computers and are now
00:17:27
manufacturing them in the US
00:17:29
it's a very small fraction of their
00:17:32
total activity it's a very small
00:17:34
fraction of their total capital
00:17:36
investment it's gotten a
00:17:39
disproportionate amount of
00:17:41
publicity you know they can point to
00:17:43
that and say we're doing the right thing
00:17:45
we're coming we're ruring so Skeptics
00:17:48
would say that there was a political
00:17:49
motive u i I don't know but you know I
00:17:53
think objectively that's certainly not
00:17:56
the dominant thing they're doing so yeah
00:17:58
they everybody's doing some of it but is
00:18:00
it is it a major sea change for them I
00:18:03
don't think
00:18:07
so so that's become a very important
00:18:10
aspect of this whole you know Global
00:18:14
sourcing issue because we have in many
00:18:20
Industries manufacturing Industries
00:18:22
where products are assembled uh the use
00:18:25
of contract
00:18:26
manufacturers contract manufacturers is
00:18:29
where you Outsource production to
00:18:31
another third party they build your
00:18:34
product in their Factory with their
00:18:36
workers uh some of them like foxcon and
00:18:39
others I think have like foxcon has over
00:18:41
a million workers in China they make and
00:18:45
they make in the same Factory competing
00:18:47
products so you will see laptops with
00:18:50
two different brands competing coming
00:18:52
down the same assembly line and so we
00:18:56
that's that is the nature of global
00:18:57
supply chain you know we you search the
00:19:00
best source of supply and very often it
00:19:02
might be the same source for your
00:19:04
competitor as for you and so these
00:19:07
contract
00:19:08
manufacturers have become very large and
00:19:11
a major player in certain industries
00:19:13
where especially where you you need
00:19:16
assembly of Peace Parts where you need
00:19:18
fine motor control and so uh what
00:19:21
they've done is they would hire young
00:19:22
people young women who have good eye
00:19:25
hand coordination and motor skills and
00:19:27
they can put together little pieces and
00:19:30
assemble them and you know they've had
00:19:32
there have been a lot
00:19:34
of you know terrible situations suicides
00:19:38
people you know going home for the
00:19:40
holidays and not coming back all kinds
00:19:42
of
00:19:43
disruptions uh you know arguments that
00:19:45
they're mistreating their workers and
00:19:46
not paying them well and you know uh and
00:19:49
this has led some of the customers to
00:19:52
impose an ethical standards on their
00:19:54
suppliers we see of course see the same
00:19:56
thing in the apparel industry you know
00:19:58
with with the use of child labor and and
00:20:02
unsafe work conditions in third world
00:20:05
countries so what's the ethical
00:20:07
responsibility of a company that
00:20:09
outsources to another company maybe
00:20:11
another part of the world to maintain
00:20:13
standards that we would think are
00:20:15
minimal in our country this is a very
00:20:18
complex question but it acts as a kind
00:20:21
of a additional constraint if you will
00:20:24
or an additional incentive to either go
00:20:26
or not go to certain plac places or to
00:20:29
control the how you do it so even some
00:20:32
of these contract manufacturers like
00:20:34
foxcon that has over a million workers
00:20:36
in China has stated publicly that it
00:20:39
wants to replace them with a million
00:20:42
robots now they're not doing they're not
00:20:44
going to do that but it was an
00:20:46
interesting statement that they view
00:20:49
that you know one of the one of the ways
00:20:50
to solve these ethical problems is get
00:20:52
rid of the people robots don't complain
00:20:55
about work conditions you know we used
00:20:57
to talk about about lights out factories
00:20:59
with robots you don't need to have the
00:21:00
lights on when the robots are working so
00:21:03
um I mean it's I don't think it's going
00:21:06
to replace it but I think that there's
00:21:08
going to be a rebalancing and a and a a
00:21:10
different increased role of Technology
00:21:12
but it affects the sourcing decisions in
00:21:15
some cases in a major way it needs to be
00:21:18
considered as part of the overall
00:21:20
evaluation of where to go and how to go
00:21:26
there it's been very Gra ifying we we
00:21:29
initially did a pilot study in China
00:21:32
where um we got 50 companies to respond
00:21:36
and we've analyzed that data and we're
00:21:38
writing that up and it's going to be
00:21:41
distributed uh we then brought in uh
00:21:44
created a Consortium of seven leading
00:21:48
universities with leading Global Supply
00:21:51
Chain Scholars people who work in this
00:21:54
area and we're all working together and
00:21:56
we started the initial phase and I think
00:21:58
we got about 35 40 companies and we held
00:22:02
a meeting in December to review the
00:22:05
preliminary results and one of the main
00:22:07
conclusions was we have to continue
00:22:09
doing this and expand the sample and get
00:22:11
more companies involved and some of the
00:22:13
companies have actually said they want
00:22:15
to help us get more companies their own
00:22:18
customers to be involved and they're
00:22:20
going to go out and and solicit them to
00:22:22
do that and and we're growing the sample
00:22:26
and we're getting more and more
00:22:27
companies to to participate and we want
00:22:31
to by the end of this year have a large
00:22:33
enough sample and this is not just China
00:22:36
specific but this would be all regions
00:22:38
of the world because one of the
00:22:39
hypothesis that people put forward is
00:22:42
there is no overall Global strategy
00:22:44
anymore it's all very Regional what a
00:22:47
even a multinational does in China is
00:22:49
going to be very different than what it
00:22:51
does in North America or what it does in
00:22:52
Europe and by asking these questions in
00:22:55
different parts of the world you're
00:22:57
going to get a very different
00:22:58
perspective so we've expanded this to be
00:23:01
more truly Global in terms of where and
00:23:03
what companies and increasing the sample
00:23:06
maintaining the basic analysis the basic
00:23:09
survey which seems to be validated quite
00:23:12
quite well and quite sound but just to
00:23:15
grow it and then I guess long term you
00:23:17
know we'll write it up both at a
00:23:20
academic level for publication and also
00:23:23
at a level where we can communicate this
00:23:24
to the business community and the
00:23:26
political Community which you know we we
00:23:28
plan to do but I think this could be an
00:23:30
ongoing research project could keep us
00:23:33
busy for
00:23:37
[Music]
00:23:56
years
