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