There is an old story about a farmer who decided to create a seedless watermelon. Year by year he reduced the number of seeds until finally he succeeded. His only problem was that he had nothing to plant the next year. He had planted himself into a corner, and out of business.
We reap what we sow. Today many manufacturers sow outsourcing arrangements in the hope of reaping cost benefits and keeping up with global competition. It is the new panacea, justified by the ineluctable pull of globalization. But, when we outsource manufacturing, what exactly are we doing? Do we know?
The quick answer is that we are getting cost advantage through cheaper labor, and putting greenbacks in the bank pronto. Wow! The quarter is saved and our investors love us today. This may remind us of a famous Amos and Andy cartoon. They received a checkbook from the bank and began spending with abandon, buying everything in site. When the bank notified them that they were seriously overdrawn, Amos declared, "But how could that be? We have plenty of checks left in our checkbook."
In other words, we may find that we are writing checks against our manufacturing infrastructure that can't be cashed. Our funds may be more depleted than we think.
The story of U.S. manufacturing is far from good. Let's review a few facts gleaned from a December report on U.S. manufacturing competitiveness by the U.S. Business and Industry Council (USBIC). The USBIC states that from 1997 to 2005 more than 100 major U.S.-based manufacturing industries lost significant chunks of their home market to foreign imports. While Ford's and GM's struggles against competitors like Toyota are some of the most prominent examples of domestic companies losing market share to global rivals, the USBIC report found no lack of similar stories in some unexpected areas.
The 114 industries studied did not include those that long ago were overrun by foreign competition, including apparel, toys, and low-end electronics. The surprise is in how many high-value, capital-intensive sectors have also lost market share to foreign competition.
From 1997 to 2005, 26 of the sectors studied lost at least 50% of their U.S. sales to foreign-produced goods. This list included: computers, broadcasting and wireless communication equipment, pharmaceutical preparations, telecommunication hardware, and navigation and guidance equipment.
The old saw that low tech is going abroad but high tech is healthy at home is delivered a fatal blow. And the issue isn't just the strong dollar, or the trade deficit. It is not simply outsourcing. There is a deeper malaise here: We really think we can be a superpower without a manufacturing base. China can build our aircraft carriers, France our planes, and the Russian Federation our spaceships.
There are, of course, exceptions, but the overall picture is clearly one of decline. Have we passed the point of no return? Is the foundation of American success to be discarded in the name of globalization, immediate profit, lack of skilled labor, and an unsympathetic milieu? Can we survive as a nation of consumers?
Your call!