Be Careful What You Wish For
A colleague of mine sent me a link to an article from Newsweek on how factories are swapping new technologies for workers during the recovery and that those jobs lost may not come back for decades, or perhaps never return.
The articles’ premise, which we agree with at least in theory, is that companies are responding to the worst economic recession since the Great Depression by investing in technology, in this case more specifically robotics, to replace the work done by mainly lower-skilled, and perhaps non-commensurately “overpaid”, workers making $50,000 per year. We are passing judgment on neither the employees nor the pay as that is not crucial to the point of this blog.
Having read the Newsweek article it got me thinking about the article I read written by Andy Grove, Chairman Emeritus of Intel, for Bloomberg BusinessWeek magazine titled “How America Can Create Jobs” . In the article Groves talked about the adverse impact corporate America’s short-term reaction to global competition, in outsourcing manufacturing jobs to much lower cost countries (i.e. China now, Mexico earlier in past, etc.).
A quote from Mr. Grove pretty much sums up my personal belief held for decades on where the country may be heading as a result of the trend towards outsourcing. “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?”
Grove used the battery industry as an example on how the adverse impact of outsourcing manufacturing jobs is hurting America’s ability to remain the leader in innovation. According to Grove, “....we are about to witness mass-produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny."
"That's a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.”
Later Andy Grove highlights his disagreement with conventional wisdom on the benefits of outsourcing US manufacturing jobs in particular as "...a general undervaluing of manufacturing—the idea that as long as knowledge work stays in the U.S., it doesn't matter what happens to factory jobs." Mr. Grove's basic belief is that by outsourcing manufacturing jobs overseas we not only lost millions of jobs but the experience, innovation and intellectual capital dveveloped from those supplier ecosystems which "can lock you (America) out of tomorrow's emerging industry.”
So what does this all mean to suppliers and partners of industrial networking infrastructure products and Connected Factory solution providers and their customers?
According to soon to be published research from VDC's 2010 Industrial Networking Products market research it means that investment in these technologies is a no less a requirement today and that these investments definitely can enhance productivity, flexibility and agility in operations, and profitability.
VDC believes that the impact of increased reliance on networking and connectivity as means to improve factory automation will be adverse on lower-skilled workers; however the overall impact will be one of "rising tides raise all boats", since training and increased education of workers can also help minimize the need to shift more jobs overseas and/or rely on investments in automation technology simply as a means to make human interaction redundant.
One may argue that had companies invested in automation technology such as industrial networking (wired and wireless) and connected factory solutions in the past many of these jobs may not have been outsourced to begin with, as greater automation would have made these companies more productive, price competitive and more profitable relative to their lower cost (i.e. labor) overseas competition.
Conversely one could argue that the trend towards technology being used to make the need for human interaction redundant in more job functions is inevitable and that the laws of nature and "survival of the fittest" will apply harshly to those employees who can keep their skills sets and knowledge up to date, as well as for those employees who do not keep up, as the world around them evolves and changes. Change is, after all, one of those few constants left besides death and taxes.
Management, and certainly their employees, should be careful in what they wish for when they seek to invest in technology, or to blindly outsource manufacturing overseas, for the sake of appeasing the short-term myopic view of Wall Street and/or “quarterly” demands of senior management. Taking a shortcut or "the easiest way" to reach an objective is not always the best action to take in the long run.
When I first started hearing stories about outsourcing manufacturing jobs overseas decades ago and how that would drive up a company’s stock price I used to always think to myself about a future scenario such as “who is going to be around and employed to be able to buy all these PCs, vacuum cleaners and other products in the future?”
I, for one, will not lose hope in the innovative spirit and ingenuity of the American business person to overcome future uncertainty and to find solutions to these and many other vexxing problems. I need to look no further than Warren Buffet, “the Oracle of Omaha” who at the end of Q3 reiterated his firm belief that the American economic system is sound and works extremely well, and that the long-term prognosis for the U.S. standard of living remains very favorable. Heck, if it works for Warren than it works for me.
I welcome any thoughts or perspectives you may have on this issue and certainly welcome the opportunity to discuss how VDC’s outlook of industrial network infrastructure products – both wired and wireless – is robust, and how companies’ investments in connecting their factories and/or process operations is driving greater flexibility, increased productivity and overall profitability, and may actually be protecting some American jobs except for those unfortunate “downsized” lower-skilled American workers notwithstanding.
