IE-
5321-001 Enterprise Analysis and Design

 

 

 

 

 

 

 

Term Paper

 

 

 

 

 

Submitted by

Paul Gaurav Nalam

1001233998

 

To

Prof. Brian Huff

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“Manufacturing consumer products in
the United States”

 

Contents

Introduction
Internation standing of
American manufacturing

 

 Discussions

American taxation
Public view in manufacturing
Outsourcing and off-shoring
benefits
Loss of jobs and moving
plants off shore
Alternative Manufacturing
Strategies
The future of manufacturing in
the US
Conclusion
References 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

The years of the automobile, transportation equipment, fabricated metals and
electronics production has created a plethora of manufacturing jobs in the
millions for all the working middle-class Americans. This history of
manufacturing in the United States has cemented its status as an industrial
powerhouse.  

But the merger of a few factors that took place during the second half of the
20th century contributed to the deterioration of manufacturing
in the United States. America turned from a powerhouse manufacturer to a
service provider to a large extent. The primary reason for large manufacturers
to shift their production facilities offshore is due to the high wage
requirement for a manufacturing worked compared to the cheaper labor in
countries like Japan and India. 

The manufacturing sector has $5.9 trillion market economy fraction of the
United States is a significant number stating that it is far from dead. The
industry bounced backed from the recession that hit the US from 2007-2009 and
is gaining a momentum in hiring. 

The current challenge faced by manufacturers is to create attraction among the
next generation of manufacturing minds. 1

International standing of American manufacturing

Trade provides a tremendous opportunity for rising in the manufacturing
industry, this gives us the opportunity to have traded on a global scale with
other competitors. Only five percent of the world’s population lives in the
united states, this gives the US an impetus to start new markets for internally
manufactured products. Recent trade agreements are directed towards reducing
the barriers to trade abroad. 

Bills passed like the NAFTA effect the manufacturing job sector, this caused
the loss of jobs, but significant growth in the manufacturing industry can be
identified in the past few years.

These efforts have also influenced the competitive establishment of labor costs
in the US accompanied by the rise in labor wages abroad especially China. Other
Factors like falling energy prices have helped manufacturing industries like
chemical, plastic and fertilizer producers. This change in the manufacturing
economy of the US caused the influx of a lot of new investment which would most
definitely boost the trade output of the country in the years to come.

Manufacturers in the United States employed 12 million
workers in 2013, which is about 8.8 percent for the employment in U.S.
manufacturers encourage workers with a high school degree with few technical
know how to apply to the company, this causes a higher wage of non-college
educated workers to earn 11 percent more than similarly qualified workers in
other industries. This in turn also gives people with a higher education like a
bachelor’s degree to have preference over the other, this creates a dip in the
wages of a highly qualified personnel working for a manufacturing unit with a technician’s
paycheck. The lack of jobs for an engineer causes this shift in preference.

American taxation

 

American manufacturers are moving
overseas, this shift of the manufacturing headquarters is called “corporate
inversion”, this has been a convenient alternative for American companies with
offshore earnings to reduce their tax bills. This started in 1982, when
McDermott, a construction company, outsmarted America’s Internal Revenue
Service (the IRS) by moving its base from New Orleans to Panama, where it had a
subsidiary. This was recently followed by CF Industries, a fertilizer
manufacturer, and Coca-Cola Enterprises, a drinks bottler, both said they would
move their domiciles to Britain after mergers with non-American firms. Five
days later Terex, which makes cranes, announced a merger which will involve
moving its legally recognized headquarters from Westport, Connecticut, in New
York’s tri-state area, to the tiny town of Hyvinkää, Finland 2.

 

This trend continued with more than
30 years companies, especially American ones, have been merging with foreign
firms or acquiring them outright in order to shift their tax bases abroad.

 

The American government has tried to
impose hefty corporate taxation on foreign domicile companies, this will not
change the daily activity in the company after Inversion. The government has
tried to withhold any approvals given to companies that are involved in
corporate inversion. In the US, the companies have to choose to pay relatively
high corporates of up to 39% compared to about 12% in other countries.

 

Public view in manufacturing

According to a case study by
Deloitte, Only one out of 3 parents encourage their kids to take up
manufacturing as a career, only 50% of them think that schools provide adequate
knowledge and experience about the manufacturing industry. The survey also
found that half the population thinks a manufacturing job could be interesting
and provide job satisfaction,1 out of 4 think the likely hood of transfer of a
manufacturing job to other countries is high. Most people visualize a
manufacturing job to be highly dangerous, strenuous, require long hours of work
and low wages, this creates an assumption of lack of job stability and safety
compared to other professions. Most people also think the career prospects for
a person with a manufacturing job is low. 50% of the people think a
manufacturing job doesn’t have a good income. 3

The public opinion is critical to
the future of the US as a manufacturing forerunner in the competitive open
market of the planet. Efforts in educating and providing funds for
assistantship in plants to schools and universities to educate people to take
up part-time work on the shop floor is essential. This helps the future
generations understand the importance of the manufacturing economy and
experience the real benefits of manufacturing experience.

 

Outsourcing and off-shoring benefits

 

Companies Outsourcing or offshoring
began for cost-cutting measures but rely on capability-sourcing broadly by
creating a strategy in developing world-class talent to bringing new products
to market faster and enabling business model innovation. In other words,
they’ve moved far beyond mere cost-cutting.

Based on research and experience the
people at Forbes have understood that leading companies exploit the benefits of
outsourcing or offshoring but five basic strategies.

 

– Tap
into global talent-in the case of Texas
Instruments the move of an R center to India has helped with not
only with delivering cost savings but also nurtured a rich talent pool that has
delivered an increasing stream of U.S. patents. A lacking talent pool in the
local plant can impede the companies ability to grow.

 

– To
build partnerships that both capture value and reduce risk- Companies have
understood that a calculated risk has to be taken in mergers to increase
relations with strategic partners tightly
integrating their domestic operations or overseas subsidiaries.

 

– To
seize new local market opportunities. As new countries start entering into
the world economy with development, companies need to take the opportunity to
establish their presence before their competition.

 

-To get to market faster and boost innovation. To boost
innovation companies set up R plants offshore which can contribute
significantly to the revenue, just by bringing out new products ahead of the
competition in a  rapidly changing market.

 

-To disrupt traditional business models. It was found that by
sending work offshore it would provide an impetus towards changing the
traditional business model, which would make the operation lean. Like in the
case of Acerwhich propelled it to have a great business structure
with a workforce of 6,800 employees less than a tenth the size of its
largest competitor.

 

Research has proven that if a
company doesn’t get a return of at least 25% on its sourcing investments, it
needs to carefully review and fix its current programs before moving on to new
projects4.

 

Loss of jobs and moving plants
offshore

Job outsourcing is when U.S.
companies hire foreign workers in foreign lands to exploit the benefits of
other economies. This would cause companies to shift from looking at Americans
as prospective employees. The US company subsidiaries have employed 14million
workers which is double the 7.5 million American unemployed citizens. If these
jobs came back they could also employ the 5.7 million workers who would like to
work full time but are currently employed as part-time employees.

 

If this happens the companies would
be forced to increase the prices of the goods sold that are made locally as the
workers in the United States expect a much higher wage compared to a worker
with low wages coming from emerging markets with lower standards of
living. This outsourcing reduces the goods sold here.

 

The recent administration of Trump
has enforced a few changes in trade and employment of American domicile
companies. He has enforced higher taxes on goods that are imported and has also
forced bills like the NAFTA, which could potentially affect the economy of the
united states significantly.

Alternative manufacturing strategies

Manufacturing
depends on product and process technologies which include components,
equipment, design, materials,  process type, operator skills, and
economies of scale etc1. The strategies depend on if they are contract
manufacturers or original design manufacturers. In the dynamic state of flux,
it isn’t long to see a CM turn into an ODM. 

 

Contract Manufacturers (CMs)

 

Contract
manufacturers produce proprietary products for OEM customers. By advancement in
assembly equipment, the CM quickly start producing advanced products fit for
OEM standards. The design capabilities are enhanced to contribute to the value
of the consumer product. U.S. firms, like Xerox, Compaq, and Apple, began
outsourcing production to contract manufacturers in order to reduce production
costs.  

 

 

 

Original Equipment Manufacturers (OEMs)

 

Fully integrated firms that design, manufacture and
sell their own brands under registered trademarks are referred to as original
equipment manufacturers (OEM) 1.these companies are well known in developed
countries and are slowly permeating into the manufacturing systems of other
countries as well.  The infrastructure of the growing equipment and
component manufacturers in the Asian market has led to an increase in a number
of OEM companies in the east.

 

The
future of manufacturing in the US

 

Manufacturing executives had a more
bullish idea of the future compared to the current politician, here a
professional service formed a council with Deloitte with the council of
competitiveness to release its 2016
Global Manufacturing Competitiveness Index, showing that the United States is
the second most competitive manufacturing economy after China.

 

The reason for
this speculation is that long gone are the days when cheap labor was the most
important input for manufacturers. The manufacturing employment of China has
consistently been falling since 1990’s.

 

Also, that
modern manufacturing practices reduce the necessity to have a large labor force,
because of more important factors of success in the sector like advanced
technologies, automation.

 

The fact that
China has lost more manufacturing jobs than the U.S. over the past 20 years is
a strong indication that playing hardball with the Chinese isn’t going to do
anything to increase employment in the United States. 5

The deterioration of manufacturing
employment is a natural economic process that many industries, like what
happened in the agriculture industry over the past few decades. As sectors
become better at what they do, they often require fewer people to get the work
done.

Looking at the trend of the change in
manufacturing industries over a point to have a decrease in the requirement of
a large workforce, seems that it is inevitable. The loss in jobs is real, but
it is a trend happening all over the planet among other strong competitors as
well.

More importantly, it should be
understood that the jobs generated are not always directly proportional to the
throughput of the company, as other methods of product chain management can be
more profitable substituting the requirement of a larger workforce. The
manufacturing in the US seems pretty promising.   

Conclusion

There is definitely increase in the
influx of new investment in the United States due to efforts towards “reshoring”,
but sometime the word can be misleading. All the companies firstly look for
profit and that according to my perception ranks above loyalty to a country,
hence they will look for opportunity in other growing economies where they can
establish a market for the consumer products that they want to
manufacture. 

No matter what the past of
manufacturing is in the United states politicians and the government needs to understand
that the primary motive of large corporate businesses will be revenue and they
should actively make efforts towards more open amendments towards accommodate the
requirements of manufacturers in the US.

People hope they make more products
in the US, but we also have to understand that some investment may
not come here because it makes more sense to manufacture in other countries. Some
businesses might be turned away because of the tax and regulatory policies of
the US, both of which need to be reformed for the manufacturing economy to see
a brighter future in the US.

 

 

 

 

 

 

 

 

 

 

 

 

References

https://www.forbes.com/2010/06/15/outsourcing-capability-sourcing-leadership-managing-bain.html#5bf2a5a4718b
 https://www.economist.com/blogs/economist-explains/2015/08/economist-explains-9.
https://cdn2.hubspot.net/hubfs/91208/MFG_Infographic.jpg?t=1513035286698
https://www.forbes.com/2010/06/15/outsourcing-capability-sourcing-leadership-managing-bain.html#350fc3ae718b
http://fortune.com/2016/03/31/united-states-manufacturing-china/