Many Happy Returns: Why The Move To Bring Jobs Back To The U.S. Is A Boon To The Channel
On a gray September day in 2010 Dell shuttered its Raleigh, N.C., PC assembly plant and sent 905 manufacturing jobs south to Mexico. The move, at the time, was part of a $4 billion belt-tightening, according to Dell.
Fast forward three years, and 60 minutes west of Dell's closed plant some of those former Dell employees are back on the PC assembly line working for Lenovo. And in an ironic twist, Lenovo said those jobs, which are part of a new plant opening in Whitsett, N.C., this past June, are coming back from a Mexico-based PC manufacturing plant.
Dell also has brought jobs back to the U.S., bringing call-center jobs back from India to Idaho in 2008.
Reshoring, onshoring, backshoring and job repatriation -- all buzzwords we hear when it comes to the trend of high-tech industry jobs headed back to the U.S. But is it all part of a patriotic feel-good story? Are the tables really being turned on staggering U.S. job losses to less- expensive labor overseas?
According to a 2013 survey by the Association Connecting Electronics Industries, 16 percent of the 92 U.S. high-tech firms interviewed said they already have returned a portion of their operations to North America in the past two years. An additional 14 percent said they were planning on moving operations from countries such as China and Mexico back to the U.S. by the end of 2014.
Manufacturing and product development will never return to the halcyon times of 1970s. But there are some indicators that reshoring is creating a new normal in the U.S. where more manufacturing and IT jobs are created here in the U.S. and not offshore.
Has the tipping point been reached? And how does the channel in particular stand to benefit?
NEXT: The Total Cost Of Finished Goods
THE TOTAL COST OF FINISHED GOODS
Apple, Google, Samsung, Intel and Lenovo: These are just a few of the high-tech companies that together have brought back 50,000 manufacturing jobs to the U.S. in the past three years from countries such as China, India and the Philippines and from infamous factories such as Foxconn, according to the Reshoring Initiative. But that's a drop in the bucket compared with the 6 million U.S. jobs that have been lost between 2000 and 2009, according to the Bureau of Labor Statistics.
"Last time I looked, the unemployment level was still sky-high," said one government-focused solution provider who preferred not to be identified. "I hear a lot about reshoring, but where are the jobs?"
Experts, however, say the reshoring trend is real but acknowledge it is ramping up slowly.
"It's a lot more than a press release for these companies," said Harry Moser, who founded the Reshoring Initiative in 2010 and is its president. The initiative's goal is to outline the profit potential as well as the role manufacturers could play in bolstering the U.S. economy by bringing jobs back to the U.S.
Moser said reshoring isn't a decision driven by nostalgia or flag-waving -- it's one that simply makes business sense.
"After years of chasing low wages across the globe, more companies are waking up and thinking about the total cost of finished goods," Moser said. He said companies that offshore manufacturing haven't really done the math.
Average crude oil prices have jumped 266 percent since 2003, making cargo-ship fuel much higher. A natural-gas boom has lowered fuel costs for running energy-greedy factories. Average wages in offshoring hot spots such as China have increased in some cases five-fold since 2000 and are predicted to creep up an estimated 15 percent to 20 percent in the coming years, according to a TD Bank Group report on reshoring. At the same time, U.S. wage increases have remained flat.
Over the past years, meanwhile, U.S. labor productivity levels have shot up as overseas productivity levels have fallen at some overseas manufacturing plants. But not only are U.S. workers more productive, U.S. workers are more skilled, on average, than their Chinese counterparts, according to a report from The Boston Consulting Group.
While manufacturing represents less than 12 percent of U.S. gross domestic product and only 10 percent of national employment, reshoring for the IT industry and channel is having a disproportionately positive impact, Moser said.
NEXT: The Competitive Advantage
THE COMPETITIVE ADVANTAGE
"It's still more economically viable to manufacture overseas," said Jay Parker, president of Lenovo North America. "That gap has shrunk but still hasn't closed. But bringing manufacturing within the U.S. is worth the competitive advantage."
That edge for Lenovo means that orders ship faster, last-minute configurations are a breeze and close-to-the-box services such as SLAs can be modified without impacting delivery dates.
"If you are a channel partner that doesn't want to carry inventory and I tell you, 'Hey, this order doesn't have to be on a boat or even on an airplane from China. It's coming from North Carolina this afternoon and it will be to you in two days.' That's a big deal and that's an advantage to this model," Parker said.
In June, Lenovo began production of its ThinkCentre M92p desktop, ThinkPad Helix convertible Ultrabook and ThinkPad Tablet 2. It has added more than 115 manufacturing jobs and 185 additional North Carolina jobs for logistics, service and return positions and 150 call-center jobs have been reshored from Bangalore, India, Parker said.
For Lenovo partner Computer Upgrade King, Midlothian, Va., which deals in federal and state government contracts, products assembled in the U.S. can be a boon to business.
"In some cases, customers demand or require that systems are assembled in the U.S.," said Rob Robinson, vice president of Computer Upgrade King, which also is General Services Administration/Trade Agreement Act-compliant. "We can go to a customer and say, 'Here is your U.S.-built system' and lay it on a silver platter. It helps us sell Lenovo and that has been good for business," Robinson said.
"For our partners, this [is more than] a feel-good story," said Tom Looney, vice president and general manager for Lenovo North America. "When two VARs are dealing with the federal government, and one bid creates U.S. jobs and the other doesn't, the company is going to pick the VAR creating a job."
Howver, the CEO of a leading government contractor, who asked not to be identified, said winning a contract has less to do with patriotism and more to do with system reliability and price. "If a computer or BPO [business process outsourcing firm] is TAA-compliant and the price is right, nine out of 10 times you win the contract," he said.
Being TAA-compliant means goods comply with a 1979 act of Congress that governs trade agreements negotiated between the U.S. and other countries. The act requires a product to be made in the U.S. or in a designated country that includes Canada, Mexico, Australia, Singapore and more than 100 others.
NEXT: Closing The Communications Gap
CLOSING THE COMMUNICATIONS GAP
Chip maker AMD decided to build its low-power and space-saving SeaMicro servers just down the road from its corporate headquarters in Sunnyvale, Calif. For AMD, manufacturing in the U.S. is about control over the process and avoiding potential communication issues during system manufacturing that can hurt the quality of a product.
"AMD's decision has provided a tremendous advantage in time to market through engineering agility and has created hundreds of high-paying manufacturing jobs in Silicon Valley," said Dhiraj Mallick, corporate vice president and general manager, data center server solutions, at AMD, via email.
That engineering agility can translate into huge productivity gains. Companies can build, test and innovate products and go to market faster when developers are co-located, said Scott Staples, co-founder and president of Americas for Mindtree, a global IT and product engineering company.
Mindtree, with headquarters split between Warren, N.J., and Bangalore, India, specializes in helping companies outsource jobs, often overseas. It has 13,000 employees in Bangalore alone, with many of its customers based in the U.S. But it recently has turned to reshoring, returning 400 engineering jobs back to the U.S. in Gainesville, Fla. Three more so-called U.S. Delivery Centers will soon follow here in the U.S., Staples said.
Reshoring Initiative's Moser said the other side of the reshoring story isn't just about returning manufacturing jobs. For the high-tech industry, it's about returning information technology jobs, business process jobs and thousands of call-center jobs that have migrated overseas.
Staples said that instead of chasing-the-sun software development, Mindtree is pitching its clients on working more closely with developers either one-on-one or at least in the same time zone. "Yes, salaries are cheaper overseas, but engineering cost is not always the driving factor," he said.
Mindtree also is reshoring its agile software development to Florida. Agile software development is an approach to software creation based on incremental development that requires close communication between developer and client. A tight feedback loop, at the end of the day, can be more cost-effective than juggling time zones and flying management from country to country to oversee development, he said.
Agile software development also can reduce development time significantly and improve quality of the end product, Staples said. That idea has the growing support of economists and business leaders who say industries that produce complex, high-tech products benefit from keeping employees close. Clusters of manufacturing and development allow ideas to more naturally flow and increase productivity and innovation.
San Jose, Calif.-based solution provider and server maker Supermicro told CRN it balances the offshoring trend by heavily expanding integration, service and support capacity in the U.S. "We are investing in the future by expanding our presence in the U.S. This encompasses investment in R&D primarily and the recent acquisition of additional space in Silicon Valley," said a company spokesperson in a written statement. Supermicro recently paid $30 million for the old 36-square-acre campus of the San Jose Mercury News.
NEXT: Protecting The Supply Chain
PROTECTING THE SUPPLY CHAIN
While companies such as Mindtree are exploring the connections between making and innovating, others such as Apple see stateside manufacturing as a way to protect their supply chain from natural disasters -- such as the Haiyan typhoon in the Philippines -- or geopolitical issues that could jeopardize the reliability of parts.
In the fast-paced high-tech industry where one piece of a supply chain can sometimes make or break bringing a product to market, Apple tries to own as much of its supply chain as possible. To that end, in November Apple said it would open a new plant in Mesa, Ariz., that will create 2,000 jobs to make components for device camera-lens covers and its iPhone 5s' fingerprint recognition home button.
"What you want to avoid if you are any company is that you have all the components at the time you need them when you are trying to get them into the hands of your buyers," said Jeffrey Karrenbauer, president of InSight, a supply chain consultancy that works with international companies to minimize risk.
Whether it's Apple or a solution provider, it's equally important to be fast and nimble when it comes to responding to customer needs. Reshoring by companies such as AMD and Lenovo helps take some of the variables out of depending on components that are sometimes located on the other side of the planet, said Computer Upgrade King's Robinson.
"The build time for Lenovo has gotten a lot faster. The supply chain has gotten a lot better and Thinkpads that used to take six weeks to ship now are getting where they need to be in two weeks," Robinson said.
Karrenbauer said companies reshore for a number of reasons, but as typhoons and geopolitics factor more into supply chain, diversifying a company's sourcing locations -- including onshoring and nearshoring manufacturing -- is a way to reduce risk.
This report originally appeared on the CRN Tech News App for iOS and Windows 8.