Outsourcing Not the Culprit in Manufacturing Job Loss

For many Americans, the word “outsourcing” conjures up images of manufacturing job decline. But the United States is far from alone in losing manufacturing employment, points out Dan Miklovic (shown above), vice president and research director at GartnerG2, the business research arm of Stamford, Conn.-based Gartner Inc. “Recent studies show that manufacturing jobs are declining everywhere,” said Miklovic, during a Nov. 17 panel discussion on outsourcing, part of a Global Media Summit sponsored by Rockwell Automation, Milwaukee.

Over the past decade, U.S. manufacturing jobs have declined by more than 11 percent, Miklovic noted. But at the same time, Japan’s manufacturing employment base has dropped by 16 percent, while the number of manufacturing jobs in countries including Brazil have declined by some 20 percent, he pointed out. “And one of the largest losers of manufacturing jobs has been China,” Miklovic added. “We like to pick on China and say that all of these jobs are going to China, but they’re losing jobs in manufacturing as well.”

The reason for the job losses? Miklovic summed it up in one word: automation. Through automation, he said, “we are really doing a good job of improving the productivity of people.”

Miklovic reminded media attendees at the panel session that 25 percent to 30 percent of the U.S. population was at one time involved in agricultural jobs. But today, only 3 percent of Americans work in agriculture, yet they have turned the United States into a net agricultural exporter, he noted. “The same thing is now happening in manufacturing,” Miklovic said. “Through automation, through improved productivity, we’re driving the number of jobs down on a global basis.”

Job loss in India

Confirmation came from another panel participant, K. Muralidharan, senior general manager for Sundram Fasteners Ltd., a major Indian automotive parts manufacturer. In India, he said, growing use of automation is holding down manufacturing job growth despite the large amount of outsourcing work that is flowing to the country. “I find that outsourcing in India has actually cost jobs in Indian industry, though in the long term, it will probably have a positive effect on employment,” Muralidharan said.

Manufacturing employment remains at about the same level in India today as it was during the recession of the late 1990s, according to Muralidharan. “The Indian economy is booming now, and it is predicted that in the next five years, the curve will only be upward. But still, the jobs and employment are not really growing at the same pace,” said Muralidharan. “The economies of scale that have been created due to outsourcing from developed countries have forced Indian industry to take on automation heavily, which was not the case about 10 years back,” he said.

GartnerG2’s Miklovic noted that the use of automation contributes to a cyclical situation in many industries. When a U.S. manufacturer develops a new product, for example, the company has first-mover advantage for a time. But in the next phase, when other manufacturers enter the market, competition often shifts to price. In response, some U.S. producers may move manufacturing offshore to developing nations, to take advantage of lower labor costs. However, said Miklovic, they frequently find that the level of automation and technology available in developing nations is less than that of the United States.

This means that U.S. manufacturers who then invest in sophisticated automation technology at home can gain the upper hand for a time over lower-priced imports, thanks to the higher quality product allowed by the automation, said Miklovic. But the automation technology used in the developing nations eventually catches up, giving products produced there the advantage, he added.

“We see this in semiconductors all the time,” Miklovic said. “Semiconductors typically have been produced in Japan and Taiwan. But now there is a booming semiconductor market that’s starting in China.” While the density and sophistication of semiconductor chips produced in China cannot yet match that of Japan and Taiwan, said Miklovic, China’s technology is moving in that direction.

“Automation only works for a period of time,” said Miklovic. The lesson for manufacturers is that they must continually reinvest in automation and innovation, he said. “If you stand still, ultimately you lose.”