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Why Amazon Can't Manufacture a Kindle In the US
theodp writes "Ever wonder why all those job listings for Amazon subsidiary Lab126 — the internal group behind the Kindle and, by all accounts, an upcoming Android tablet — have travel requirements? Over at Forbes, Steve Denning explains why Amazon can't make a Kindle in the U.S., and why that really does matter. 'The idea that there is a lot of outsourcing going on is hardly news', writes Denning. 'The idea that it is irreversible and destructive of the economy's ability to grow is less well known. Even so, it's not exactly new news: the HBR article that I cite is two years old. What is really new news is that (1) these fairly obvious truths haven't yet dawned on economists at the Federal Reserve Bank of San Francisco, CEOs, accountants, politicians, among others and (2) the way to manage in a radically different way to deal with these issues is now more fully articulated than it has been before.' Denning concludes his trilogy-of-management-terror by noting that the decline is also occurring in software."
Sure, places like Taiwan are better at manufacturing electronic components than the US is. The US is better at building airplanes than Taiwan is. So, we trade -- the US builds airplanes while Taiwan manufactures electronic components. As a result, we get less expensive electronics and less expensive airplanes. That's a good thing which makes everybody better off.
...it dawned upon them a very long time ago. But at the end of the day they'll get a bigger paycheck if they outsource something to lower the costs. Let's be honest, there's always someone somewhere on this planet who does it cheaper...and now guess what Capitalism is about.
Much more destructive than the recent outsourcing to China and India has been the much bigger outsourcing to a place called Technologyville.
Outsourcing to Technologoville has been going on for close to 300 years now and has destroyed countless jobs, not to other poor people, but to machines. Clearly, CEOs, accountants and other must see the job-destroying evilness that is technology and stop all "outsourcing" to Technologyville immediately.
Value addition, cheaper goods accessible to more people and an increase in living standards are no reasons to continue this brain dead policy.
Dell told its 905 workers there that the factory will be closed by January in a cost-cutting move that will send more of the company's manufacturing overseas.... Analysts said they expect Dell will transfer much of the work now done in North Carolina to lower-cost contract manufacturers in Asia, who already make PCs for Dell's rivals.
Here is a suggestion you could make to your local politician:
Companies selling products in the US or Europe must be obliged by law to ensure that some minimal labor standards are maintained in the whole production chain, including all subcontractors suppliers. If minimum industrial safety and labor protection requirements are violated the management of the company selling to the end-consumer must be held accountable for it and should definitely face prison terms in serious cases.
Such laws would in the long term help people in countries like India, China, and certain regions of Africa (cocoa plantations, mining, ...), where workers are sometimes held and de facto treated like slaves. In case of cocoa plantations, for instance, there is a market of child slaves in certain region in the world. One child costs around $200. That's why chocolate is pretty cheap all around the world. (I am not making this up! This is well-documented.)
Anyway, with such laws in place and being enforced, it would become more viable to produce in the US and Europe again. Of course, some products, especially clothes and chocolate, would also become much more expensive.
Software is another matter. I don't believe Indian programmers are treated significantly worse in terms of working conditions than elsewhere, and salaries are relative, of course.
The Yuan is not floated like many countries currencies are. This gives China a significant competitive advantage over all countries to produce goods and services in their country. China take the long view. They know that his will weaken manufacturing in several countries and drive demand to their economy where labour laws and conditions are under their control. Incrementally they will capture those markets.
The irony in all this is that China is still a communist country using capitalism to destabilise democracy.
My ism, it's full of beliefs.
The highly polished injection-molded case is made in China because the US supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
Considering I've worked on advanced injection molding machines IN the US this is such pure bullhockey.
The controller board is made in China because US companies long ago transferred manufacture of printed circuit boards to Asia.
Another BS line, again I've worked with an assembly line making PCB's and finished boards, right here in the midwest.
The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.
The worlds largest lithium-ion battery facility is just being finished outside Dearborn, Michigan right now.
This whole article reads like some rant by a coastie who has no idea that we still make things here in the midwest, and if the MBA's would stop deciding to chase short term profits at the cost of long term brand erosion and control we would be happy to keep doing it. Over the next decade increased fuel costs paired with a decoupling of the Chineese Yuan from the dollar will lead many companies to pull manufacturing back to the US.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
Uh-huh. American companies outsourcing abroad means fewer US jobs. So far so good.
More questions:
- Why would an impartial observer care one jot about that?
- For someone who did think it was an undesirable state of affairs, what can be done about it?
If you forbid US companies from outsourcing abroad -- they simply take their entire operation abroad, and cease to be US companies.
If you enforce protectionist import/export restrictions -- other countries respond in kind.
Because, as the series of articles makes clear, most of the infrastructure needed to build and operate those factories is also overseas. Now just about everything needs to be shipped back. Expertise and equipment to build the factories, raw inputs at whatever level of refinement you choose, etc. Heck, is there even a local infrastructure for handling the waste by-products of these automated factories?
That's the point... it's not just a factory here and there. Unless you've got a factory that can take beach sand and petroleum in one end and pump iPad's out the other, you need an entire community to work around your factory to keep things flowing. That community is pretty much gone.
Log in or piss off.
- Why would an impartial observer care one jot about that?
Its an end run around feel good environmental and labor relations laws and it's inherently racist. We got rid of all the factory workers jobs and their benefits and "improved" working conditions. Now its time to race the white collar guys to the bottom. Its intellectually dishonest to prattle on about safe and humane working and living conditions being a human right, unless you are not an American, in which case you deserve to sit in the back of the bus with the other undesirables. Someone, please, just have the guts to stand up and say that the labor classes are, should, and always will be oppressed, no matter if they're white, black, red, yellow, whatever country. Repeal all the OSHA and EPA, git rid of all the unions, have the guts and honesty to say we will voluntarily send the whole stinking world back to about 1900. Anyone who won't is just a spineless coward or lying to line their pockets in the process of the destruction of their country.
- For someone who did think it was an undesirable state of affairs, what can be done about it?
Tariffs. Add the difference in costs between doing business in China vs doing business in USA to imports. You'll get a huge amount of astroturf paid by the retailers about how that'll eliminate American jobs, with really deep reasoning, like, because they say so, and because some paid astroturfer 50 years ago said so, so it must be true. Ask yourself, what jobs would be eliminated, they're already GONE! The few that haven't been exported yet? What are you going to do, fire us all 6 months earlier than planned? At least we'd go down fighting rather than the plan of slowly wasting away,
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
The arguments that retooling is hard, just doesn't make it. Planned retooling is now designed into the manufacturing process. The U.S. helped develop the the Japanese manufacturing base by ignoring Demming. The Japanese were known for poor quality, so even with their lower labor rates. The Japanese improve their quality by following Demming and eventually overtook U.S. manufacturing and steel production. The remaining U.S. industries learned to focus on statistically analysis integrated quality control, and designed retooling became part of the process. So what drives the decision to outsource: 1) lower environmental standards, 2) lower overall employee costs, 3) tax benefits, 4) economic stability.
I think the underlying article hits the problem straight on. These economic factors are enticing from a cost accounting perspective, but not from a competitive one. Eventually, the knowledge is transferred to the low cost producers and they no longer need the costly U.S. managers to drive the business. We see that now with the rise of Haier and Chinese manufacturers who are beginning to dominate the lower end market. Eventually, they will displace the high margin businesses.
The U.S. main advantage in the past has been easy access to capital via efficient markets. With the current crisis and the idiotic standoff over debt, these markets may give rise to competing capital markets in SE Asia. The Chinese are flush with cash and it won't be long before they start to bypass the Western capital markets.
So what do we do? First, stop letting corporations drive the political agenda, because their short term focus is killing our industry. If we changed our focus to research that will enable lower cost production even with high labor rates, we can pull back manufacturing. This will have to be done at a grass roots level, because Wall Street will not invest in this kind of retooling when they can invest in companies that outsource. This means that we need to stop electing corrupt corporate lackies and uneducated religious nutcases, and change the rules so we encourage companies to invest here. Here a though, remove ALL corporate loopholes, and offer tax incentives only to those companies that in-source production and service jobs. Offer tax breaks to companies who invest in basic research programs that will innovate product and keep the technology here. This incentive can extend to University research which is most corporate funded anyway.
If you believe our problems stem from big government and the fear of socialism, then you are an idiot. Socialism is beating the f..king pants off of us right now, so that can't be the main issue. We as citizens must drive the political agenda and encourage Wall Street to invest in companies who develop our local economies. Otherwise, start learning Chinese because they are destined to be your overlords.
It isn't Unions, socialism, or big government that is killing us. It is the short term thinking of Wall Street. Once Wall Street was temporarily taken out of the picture at GM where they perpetuated a management culture that was adverse to change, the company was able to shed its high cost assets and return to profitability. In essence, it took government action to force the correct change in direction.
Look on Slashdot, any time an economics article comes up, there'll be people who post, and often get moderated up, who declare that the "US doesn't make anything anymore except imaginary property." That is of course not just false, it is exceedingly false. Until this year, the US made more manufactured goods than any other nation. China now makes slightly more than the US, but the US still makes more than anyone else (by a reasonable margin).
There's no question that there is a large amount of outsourcing going on, but this make-believe that the US doesn't make anything, particularly anything high tech, is beyond stupid.
My favourite example is always processors. Intel has fabs in a few other countries but most of their fabs (7 of 10) are in the US. All their 32nm stuff is in the US and nealry all their 45nm stuff. So if you buy a modern Intel CPU, it was fabbed in the US. It was tested and packaged somewhere else most likely (though they now have a US packaging site for things sold in the US mostly) but the high tech work, the fabrication, was done in the US.
The US used to be better at manufacturing electronic components then the US. This is no longer the case.
How long do you think it will be before the US is no longer top dog in making planes? Tell me... which is the biggest passenger plane in the world? Airbus came out of nothing and is build with EXPENSIVE european workers and the US can barely compete. How do you think it will fair against Chinese build aircraft in 2 or 3 decades?
This discussion is nothing new, a few days ago I asked people to name a US consumer electronics firm. People named Motorola (been selling off its divisions since the 70's to asia) and Apple (a design company that has everything build in Asia).
There is the dream in the US that you can outsource all the drudge work and keep marketing, sales and design... and run the economy on that. 300 million people, all selling, marketing and a handful of designers...
If you can't see just how silly this concept is, well, then there is no hope for you. Vote tea party and pray the end comes swift.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
"Slave-labor" wages are really a matter of perspective, based on your personal standard of living. The people filling these jobs, particularly in China, are from rural areas, who take them because they are a substantial increase in pay for their family from what they as farmers were making toiling over fields. As hard as the manufacturing work seems to us in America who comparatively have it pretty easy, isn't sitting in a chair putting electronics together somewhat less back-breaking work than bending over harvesting crops all day?
An impartial observer does not care by definition, thus your question is a red herring.
Put up protective tariffs and make it difficult to send money from the country, but easy for people to move in. You know, what we had in the past when everything went well and the opposite that we have now, when everything is going straight to Hell.
Good riddance. If they aren't doing anything for us, why would we want them around? Away with them, so new companies can rise in their stead to actually benefit us.
Good. With any luck, it kills off the multinationals, thus restoring economic power to where it belongs: in the hands of national governments and through them Us the People.
It's about time we grew a spine and fought back against these rich assholes who would have the whole of humanity compete on who can grovel best before them.
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
What this article has endorsed (i.e. government intervention) is exactly what has caused the problem. Nowhere in Part One of the article did I see any mention of actual economics, just a bunch of OMG THEIR TAKING R BUSINES. Ask yourself, what makes it cheaper to manufacture overseas? Could it be corporate taxation? Regulation? Expense of Social Security and unemployment insurance? Yadda Yadda Yadda? Anyone listening?
Dude 1: "I lost my job to someone named B. B. Rodriguez."
Dude 2: "Those bastards!! They're destroying the economy with their outsourcing! Jobs jobs jobs! Jobs!"
Dude 3: "I lost my job to Bender the Robot."
Dude 2: "Well, that's the price of progress, and ultimately, technology is the one and only thing that ever really lifts the economy. At least you didn't end up like Dude 1."
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
Companies have cost-cut themselves into oblivion. They've outsourced themselves out of business. That demonstrates the folly of their business model. Look at the results. If your course of action results in your undoing, it is clearly wrong. And yet, they march like lemmings to the sea.
The worst part is by the time enough people realize what we've lost and why, it may be to late.
Wansu, th' chinese sailor
The A380 has sold for shit because there just aren't many routes where carriers have a use for a plane that big. You have to have a lot of passengers that want to go on one flight to make it a worthwhile purchase. Thus currently they have had a total of 236 orders and delivered 56 jets, and the ordering seems to have dropped to near nothing (they've had 2 this year).
Now compare that to the Boeing 747, which has a total of over 1,400 delivered, and 114 orders for their new variant, the 747-8, which is still in final testing, and another hundred orders for older variants.
Or how about the Boeing 787, their next generation mid body plane? Expensive little thing, because of all the carbon fibre, and has had more than a few delays in delivery (if it gets certified it'll start shipping fourth quarter of this year). Yet despite that they still have 827 orders for the thing.
Seems like Boeing is doing just fine when it comes to aircraft, in particular making aircraft companies actually want. Remember that having the biggest doesn't mean anything. Who cares if you can make a big jet? Biggest for its own sake isn't useful. The A380 has been a pretty big boondoggle. The R&D cost was about 11 billion euro. They are still in the red on it, and will be for quite some time, perhaps until 2020. They made a jet that cost a lot to design and there isn't a big market for.
Remember the A380 started in 1991. 2 years later, Boeing discontinued a similar project because they felt the demand wasn't there.
To quote Douglas Adams: There is another theory which states that this has already happened.
Specifically, it happened about 10 years ago. But luckily, the banks were willing to give us mortgages we couldn't pay. (Due to complete and utter insanity on their part.) If people needed more money, heck, they could just get a second or third mortgage and get money from there.
Tada. Problem solved forever.
This will of course cause everyone to ignore the fact the economy is actually getting worse and worse, because they personally can continue to survive. They're falling deeper and deeper in debt, but surely that's just them and not some sort of nationwide statistical truth. (What if we held a slow-motion economic collapse and no one notices?)
As long as the banks don't figured out that the mortgages they've been issuing are shit, and just because they put them in complicated financials Shit-Holding Instruments doesn't mean they still aren't shit. As long as that doesn't happen, the 'economy' is great...sure, the actual 'producing things' sector is gutted, but people can borrow from the banks and work min wage jobs selling Chinese stuff to each other. Actual economies can't work like that, but as long as the banks keep ignoring that and loaning to us, we'll be fine.
Let's hope no one ever, Wile E. Coyote-style, looks down and realizes they're standing in mid-air.
*checks the news*
If corporations are people, aren't stockholders guilty of slavery?
The US is better at building airplanes than Taiwan is
I was just last week talking with a manager at a big US aerospace company. He said that they much prefer government business than commercial, because a commercial project will bring $20 million in profits while a government project of the same size could bring a billion.
As long as the US has a strong military sector to subsidize the aerospace industry they can compete, but how long will that last?
Why should it matter whether Amazon could manufacture a Kindle in the US? Is there any rule that says that every country MUST specialize in everything (which means that the country will specialize in nothing?). New York also specializes in financial services, Houston in the energy business, the SF Bay in high-tech companies, etc. Is it a such cause of concern? Why is it that everyone is very concerned about that when it comes to countries? Specialization is good, this is what makes us all more wealthy.
If you study economic history, you'll see the same progression everywhere. First, people are virtually all employed in agriculture. Productivity in that sector is low and output barely sufficient to feed everyone. Then, an industrial sector arises and expands. Productivity keeps on rising in the agricultural sector and fewer and fewer people are needed. Doomsday prophets tell us that it's horrible, it will forever change the country, etc., but we just keep ignoring them. At one point employment in manufacturing also peaks (there is only so much stuff you can buy and we keep getting better and better at producing things economically); services become more and more important. This is happening everywhere in the world. In fact, even if you consider the earth as a whole, the share of services in world GDP also keeps on rising. And, no, this is not due to trade with other planets.
The premise of the article is also wrong. There is nothing irreversible about this trend. If the US were to unilaterally erect trade barriers, it would once again be profitable to make whatever the author thinks should be made in the US. It's not as if the Chinese and Taiwanese all have some sort of secret technology that no US person could ever replicate or approximate. Especially since in many cases it is US companies that provide the specs and designs that are made in those foreign factories. It would of course be very wasteful, but it'd be possible.
The journal article on which the column is based is also bizarre. First, it's already a bad sign when you talk about "competitiveness". See for instance Krugman's article "The Myth of competitiveness" (http://www.pkarchive.org/trade/MythCompetitiveness.html). Second, weekly wages are not a good metric. Total compensation (including benefits) is what really matters. Third, please provide figures and be precise. It just won't do to say that the US "has lost or is in the process of losing the knowledge, skilled people", etc. that it needs. This makes it an unfalsifiable statement as it is much too vague. It also seems strange to argue that the US is losing the knowledge it needs when people from all over the world come to the US to study in order to acquire this knowledge. Fourth, it almost seems to border on xenophobia at times. Why should it matter if something is designed in Tokyo or Chicago? Do American designers have a higher worth, matter more than Japanese or Korean designers?
How long do you think it will be before the US is no longer top dog in making planes?
It will be quite a while (if ever) before the US does not have world class aircraft manufacturing. There is of course no guarantee that the US will maintain dominance in this industry but it isn't going to go away quickly.
Tell me... which is the biggest passenger plane in the world? Airbus came out of nothing and is build with EXPENSIVE european workers and the US can barely compete.
Airbus has been around since 1970 and was form out of a consortium of existing aerospace manufacturers - hardly out of nothing. I'm pretty sure that the folks at Boeing would be very surprised to hear they they cannot compete with Airbus. The 747 is built with expensive US labor and Boeing is still selling plenty of those. Both companies have delivered similar numbers of planes for the past 20 years and there is no reason to believe that will change soon. The fact that the A380 is larger means very little by itself.
There is the dream in the US that you can outsource all the drudge work and keep marketing, sales and design... and run the economy on that. 300 million people, all selling, marketing and a handful of designers...
The US has a $3.7 TRILLION manufacturing sector. That is larger than the GDP of all but about 5 countries in the world. Even China does not manufacture anywhere near as much stuff as the US does. The notion that the US has exported all its manufacturing is simply not supported by the facts. There are (and always have been) some industries that are dominated by firms in other parts of the world. That does not however translate to the US outsourcing all its manufacturing expertise.
The problem with your idea is that it really is hard to find anything made in the USA.
No it isn't. You just aren't really looking.
My truck is a Ford, with an International engine, but the casting was moved overseas and only assembly took place here, while virtually everything electrical was made out of the country as well.
There is FAR more to a truck than just the engine. I've been in literally hundreds of automotive assembly (including Ford) and part plants (including Visteon, Dana, Delphi, Lear, Cummins, and more) in the country. The percentage of stuff in an automobile that is made in the US is really quite high. Some of the connectors for electrical stuff are made outside the US but there is more made here than you think. (Disclosure: My current company makes wire harness assemblies so I have direct first hand knowledge of that piece of the pie) I absolutely guarantee you that pretty much any truck from a US manufacturer has a very high (>50-70% usually) of parts built in the US. Most of the rest comes from Canada or Mexico.
Every part of my computer was made out of the USA.
If you own a chip made by Intel, Freescale, Cypress, IBM, Hynix, Micron, National Semiconductor, or ON Semiconductor, chances are very good it was made here in the US. The same goes for many more parts. Yes, much is made overseas but much is made in the US as well. You've taken a very superficial look at where things are made.
While we still make stuff here, it's a tiny slice of the stuff we use
The US has a $3.7 trillion manufacturing sector and only about a quarter of that is exported. By definition we use the rest of it. Your hypothesis is not supported by the facts.
Corporations in the United States benefit from a stable political system, fair court system, strong protection for IP, lenient corporate taxation, excellent communications, etc. However, federal government policy allows these same corporations that enjoy these benefits to make all of their business decisions based solely on what is in the very short-term best interests of the corporation...and that means that those decisions generally are made by using the United States as the corporate ash tray. The only beneficiaries of this are short-term investors. European government policies generally require their corporate citizens to actually be patriotic good citizens of the countries they live in. TFA points out the long-term consequences of the US policies...not only the immediate loss of jobs but much more importantly, the loss of knowledge and expertise that, once lost, can not be easily regained. As a result, we have become a country that ships raw materials and commodities overseas (grain, meat, coal, ores, logs, etc.) and then imports finished products from those same countries that we pay for with money that we borrow from them. Obviously, this cannot be sustained and the eventual result of our own government policies is our impoverishment. Even worse, at the moment we are also borrowing money to pay for very expensive wars in distant locations while other countries laugh at our foolishness.
some companies are bringing manufacturing back to the USA: http://finance.fortune.cnn.com/2011/06/29/why-we-left-our-factories-in-china/
These companies that outsourced for cheap didn't reinvest in technologies - they just rode a wave of cheap exports. All the while, the expertise in development and manufacturing was moving offshore. They reaped enormous profits during the short term, but they didn't reinvest locally and abroad with those profits.
Successful companies opened up labs in India, Taiwan and China and actively competed for talent. The most successful companies aggregate their talent on the network and build relationships wherever the opportunities arise.
I recently worked with a big company on a new chip platform launch - the software team is in Ireland, Austin, and Israel. I work with the lab in the US, but I can quickly get bugs and questions ironed out across numerous disciplines (hardware, software, and everything in-between). It's fantastic - because they own the design and know what they're doing across the board. If they were simply rebadging imports it would likely take twice as long to hit the market.
Dell built it's first China lab in 2000, then setup a Taiwan lab in 2003. I think that they recognized the importance in integrated design teams pretty early (certainly better than HP who waited until 2005). I've gotten good support from Dell enterprise on Linux for a while now. It was pretty spotty in the beginning but now I've got no major complaints. Actually I think Dell is positioning themselves pretty well in the long term.
A gift from the down economy is that nobody expects miracle profits right now, so companies have a real choice to build up their capitol improvements and long-term outlooks should improve. Everyone knows competing for dollars is going to take a lot more work than selling PC's out of the trunk of a car.
The most successful companies of this century are going to utilize the talents where they come. They are going to reinvest those massive profits into their own product and services and support them during design, delivery and warranty. The ones that merely brand their products are going to be commoditized by their own suppliers.
I said no... but I missed and it came out yes.