Published January 09, 2014
Of all the things I’ve been wrong about over the years, there are two I’ll probably never live down.
The first is that I didn’t think Howard Schultz could come back to the company he founded and turn Starbucks (SBUX) around. I wasn’t the only one who felt that way, but that’s no consolation when you’re that wrong.
The second – which plagues me to this day – is that I didn’t see how the outsourcing and offshoring trend in the technology sector where I spent the ‘80s and ‘90s would ultimately affect our economy.
I wasn’t personally responsible for sending manufacturing jobs overseas, but like many executives, I had myself fooled into believing that America’s future was all about intellectual capital, knowledge workers, and the new economy. We all know how that turned out. We lost our manufacturing muscle and all the jobs that went with it.
As former Intel chairman Andy Grove so aptly put it, “You could say, as many do, that shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?”
While it sounded like a good idea at the time, outsourcing turned out to be a very slippery slope for a number of reasons.
Once executives bought into the management mantra du jour – to focus on their core competencies in-house and outsource the rest – any function that didn’t contribute to their differentiated value proposition became a candidate for outsourcing. Of course the highest expense – manufacturing – was the first to go.
That went hand-in-hand with a downsizing trend where companies sought to become leaner, increase profit margins, and grow shareholder value. As a consequence, the technology industry became stratified or horizontally specialized. All the manufacturing that required hordes of capital and low-cost labor went to Asia. Eventually, so did commodity engineering and customer service call-centers.
And that’s the way it remained until four factors began to converge that, together, could bring “Made in America” back in a big way – if we don’t shoot ourselves in the foot and squander the opportunity.
The pendulum swung back to vertical integration. Technology companies from Apple (AAPL) and IBM (IBM) to Google (GOOG) and Microsoft (MSFT) have seen the light – and the value in controlling virtually ever aspect of their ever-more complex products. Apple, for example, does everything in-house but manufacturing – and it controls that very closely.
China’s bad behavior. From stealing our intellectual property and illegally copying our products to hacking our companies and disrupting our economy, China has managed to flip from an enormous opportunity to an even bigger threat. Granted, it’s both, but the tide has been turning toward the latter for some time.
The backlash against offshore call-centers. Consumers have been repeatedly frustrated and confounded by offshore customer service and technical support agents that are as clueless and useless as they are polite. And that’s come back to haunt companies trying to improve their bottom line by shipping customer support overseas.
A blessing in disguise: the financial crisis. Granted, it would not be my or anyone else’s choice, but the lasting effects of the 2008 financial meltdown – a sluggish economy and high unemployment – have, if nothing else, been a resounding wakeup call to the perilous state of our nation’s job market and manufacturing base.
The confluence of these unique factors has created a nearly perfect storm for bringing manufacturing back to America. I say “nearly” perfect because there are still a few nagging issues: taxation and regulation. It’s ironic, but the one thing that stands in the way of “Made in America” is that America isn’t exactly the friendliest place for companies to make products.
That said, there’s never been a better time for the CEOs of our leading technology companies to use their not-inconsequential PR and lobbying muscle to induce our lawmakers and administrators in Washington to join them in the fight to bring manufacturing, engineering, customer service, and technical support jobs back to Americans who desperately need them.
While the technology industry might have to lead the way in this fight, it doesn’t have to end there. If the likes of Apple and Google can negotiate tax incentives to repatriate their enormous offshore cash hordes to create manufacturing facilities in America, then industrial giants such as GE (GE) and Pfizer (PFE) will surely follow suit.
The truth is, if America’s corporate and political leaders get together and actually cooperate with each other, there’s absolutely no reason why we can’t rebuild America’s manufacturing muscle, reduce the unemployment rate, and reinvigorate our sluggish economy, all at the same time.
In all likelihood, there will never be a better time than now. And there’s a very good chance that we will never have an opportunity like this again.