Americans hold firmly onto the belief that we have the most productive workforce in the world. But why has productivity failed to translate into international success in advanced industries? For an explanation, we should take a lesson from the failures of the 2004 U.S. Men’s Olympic Basketball Team, which was full of NBA all-stars but fell well short of gold.

As good as we are at manufacturing in high-tech, competitive industries (now or in the past), we are almost certainly better at basketball. There is simply more basketball talent inside U.S. borders than outside. The 1992 Dream Team won Olympic gold so easily that they didn’t call a single timeout during the entire tournament. The United States also went undefeated during the 1996 and 2000 Olympics, dominating all their competitors. The United States used to be similarly dominant in manufacturing, especially in advanced industries. After WWII, the United States developed a technological advantage that other countries could not come close to matching.

Goliath Falls

Enter the 2004 Men’s Olympic Basketball Team, a team once again loaded with top NBA talent led by two former league MVPs in Allen Iverson and Tim Duncan. Yet there were troubling signs from the beginning. The U.S. team only got together to practice 10 days before the games began. More importantly, the roster contained four small-forwards (all of whom played with similar styles), no three-point specialists, and only three guards. Star rookies LeBron James, Dwayne Wade, and Carmelo Anthony were selected more for their celebrity than their ability to contribute to the team. Argentina’s Manu Ginobli commented “I saw their roster and I knew we would beat them.” The team lost to Puerto Rico by a whopping 19 points, then to Lithuania, and then to Ginobli’s Argentina. They also barely scraped out narrow victories against Greece and Australia. Though the talent pool on many of these teams is more akin to American college teams than to the NBA, the United States was completely unprepared for the high-energy, guard-centric style favored by many international teams and the cohesion that comes from years playing together. Defenses would have to shut down one player at a time instead of taking on a true team.

Moreover, the U.S. performance in Greece was not a one-time anomaly. Two years earlier they had lost in the International Basketball Federation (FIBA) tournament, finishing sixth. They would lose again in the 2006 FIBA Championships. Even knowing that their lack of teamwork and over-reliance on one-on-one play calling left them vulnerable, the U.S. stuck to the same debilitating lack of coordination and collaboration, trusting individual talent to correct the assumedly anachronistic past defeats.

In the last decade, our manufacturing sector has been similarly bloodied and embarrassed on the international stage. U.S. traded sectors are frankly being outhustled and boxed out by international competition. The U.S. lost 37 percent of its manufacturing jobs between 1997 and 2012, a rate that eclipses almost every other industrialized nation. These losses were not predominately caused by superior productivity abroad, and, contrary to popular myth, are not currently being ‘reshored’ as part of some manufacturing renaissance. Most disturbingly these manufacturing losses mean a large and sustained increase  in our international trade deficit, including a deficit in high-tech goods every year since 2001, which shows no sign of recovery.

Unfortunately, our current outlook for export-oriented manufacturing reflects many of the weaknesses and oversights which doomed the 2004 Olympic squad. The current U.S. manufacturing strategy is akin to sending in a team of all-stars with little variance in playing styles and less international experience, negligible coaching, little scouting or preparation, no coordinated game plan and a roster only capable of challenging opponents in one-on-one, NBA-style showdowns. We tend to imagine firms competing directly with foreign competitors without influence from supporting industries, government policy, or international trade regulations. Just like in 2004, we are shocked when our “Dream Team” very predictably falls short. Quite simply, the U.S. forgot what it’s like to encounter real international competition and has adopted a dangerously laissez-faire approach to global trade.

The Redeem Team

national manufacturing strategy redeem teamReeling from the 2004 embarrassment, new head coach Mike Krzyzewski led an all-star laden “Redeem Team” to Olympic gold in 2008. Gone were the shoot-first oriented small- and power-forwards, replaced by pass-first guards, three-point weapons, and faster big men. Players understood their roles and expected solid competition from their adversaries. After losing to the U.S. squad in the finals, Spanish center Pau Gasol commented: “It’s not that they’re a lot better individually, as a team they’re working better together.”

The United States has not lost a single game at a major international tournament since. Only a few weeks ago, the U.S. team won the 2014 FIBA world championship with a roster full of young talent, including sharpshooters Stephen Curry and Klay Thompson, dynamic point guards in Kyrie Irving and Derrick Rose, and defensive-minded post starters Kenneth Faried and Anthony Davis, who were selected largely for their ability to matchup with faster international big men and make hustle plays. More importantly, the team prepared for and respected their opponents and began practicing together over a month before playing the tournament. This team knew how to pass, how to stretch the floor, push the transitional attack and how to make the defense worry about all five Americans on the court. They made winning look easy. Watching this team, it was easy to forget that just 10 years ago the U.S. was chased out of a gym by Puerto Rico.

Can U.S. Manufacturing Recover?

The same type of reversal is possible for U.S. manufacturing, which is far from dead. We still have a talented workforce, strong innovation potential, and are on the technology frontier. However, we need a reversal every bit as drastic as the steps that led to the basketball reversal. Much like we can’t go back and win the 2004 Olympics, some of our manufacturing jobs are lost forever. We can, however, ensure that future advanced industries are developed and cutting-edge goods are produced here at home.

1. Acknowledge that we are competing

First, the United States needs to understand that we face fierce international competition from countries capable of beating us at our own game. Currently, the U.S. manufacturing sector looks like we are still in our warmups preparing for an exhibition game. While we are used to easy wins, we are now facing determined opponents used to having to scrap for every victory.

In the minds of many analysts, policymakers and pundits, if a manufacturing firm goes out of business or moves overseas or if America loses an entire sector of production, it is because of the pure will of the “invisible hand” and has nothing to do with policy decision making. However, many times distortions are caused by foreign mercantilist policies, short-term market fluctuations, or the lack of appropriate American government action and policies which hamper U.S. firms and industries leading to “losses” that could have been prevented. We need to acknowledge that the global manufacturing environment has changed and adjust how we are “playing the game” accordingly.

2. Adopt better strategies

The quickest way to a turnaround is to implement a national manufacturing strategy to boost productivity and competitiveness in competitive industries. Like in the Olympics, teams can’t win on talent alone. Neither can our manufacturing sector. It doesn’t matter if we have the most talented workforce in the world or the best innovation capacity if we have excessive corporate taxes, restrictive regulations, lack of support for pure and applied R&D, insufficient entrepreneurial support, and an immigration system that limits the talent allowed to enter the country.

A national manufacturing strategy is akin to the preparations and considerations of the U.S. coaching staff in preparing their team for international competition. A proper strategy can also counter policies by foreign governments seeking to poach market share in advanced industries with tariffs and non-tariff barriers to trade. Essentially, coaches and teamwork can help prevent firms from being muscled out, double-teamed, or caught in poor defensive positions. Coaches are also needed to appeal to the officials, in this case foreign governments and international organizations such as the World Trade Organization and teach firms how to avoid being bullied by cheaters.

3. Recognize government’s role

Our insistence that the government should not pick winners and losers is our current strategy, and it’s a bad one. The Panglossian, laissez-faire fatalist ‘let the best team win’ attitude adopted by many Americans dooms our industries to deliberate inattention. However, the government does have a role in American manufacturing competitiveness, just like a coaching staff has a role at the Olympics.

Politically, this standpoint is rather unpopular. The left believes that government does too much to bolster the success of the one percent (including big corporations), while the right points fingers at what they believe is “crony capitalism.” If there is to be any progress, critics on both sides need to realize government’s role in providing support on an inherently un-level international playing field. Backing domestic industries hurt by aggressive foreign non-market interventions or providing credit to exporters does not constitute the government picking winners, but instead provides necessary tools for the winners that have already emerged.

4. Encourage and facilitate investments in future technologies

The Dream Team, however, is not guaranteed to always hail from the U.S. The next Michael Jordon, LeBron James, or Kareem Abdul-Jabbar could quite feasibly be perfecting his jump shot on a court in China. Americans tend to view their basketball players as by nature superior to those from other parts of the world. It is the same narrow-minded biases that lead to the often cited yet increasingly untrue blanket statement that America’s workforce and technology development are the most productive in the world. The idea of American exceptionalism is pervasive in both basketball and in export manufacturing. However, the simple truth is that if we do not make commitments towards fostering young athletes and young minds, America will soon be forced to recognize the absurdity of these assumptions.

Investing in research and design, both with federal funding and with incentives for private R&D will help keep the United States at the forefront of the international technology frontier. In addition, we need to enhance ouroverall STEM education and workforce development systems while also easing immigration restrictions and red tape for highly skilled workers and potential entrepreneurs. Cutting edge research and commercialization programs, combined with policies and institutions designed to ensure the most talented innovators continue to be based in America, will allow the United States to develop the next big ideas, products, and processes that will fuel future advanced industries and promote competitiveness and economic health for years to come.

Looking Forward

America has the best basketball players in the world, but that mattered little when the team faced a determined teamwork-oriented opponent with experience in competitive international play. On the contrary, the stacked teams relied on one-on-one play and a tendency to select the top pure scorers even if they all play the same position. Unfortunately, our nation’s manufacturing sector is equally unfocused, ill-prepared for international competition, and unable to utilize its advantages. Like the 2004 U.S. Olympic Basketball Team, our manufacturing sector has forgotten how to overcome challenges to our superiority.

Revitalizing American manufacturing will not be easy. Bear in mind, the United States is much better at basketball compared to the rest of the world than we are at manufacturing. In business, the margins are slimmer, the talent is more evenly spread, and policies can only do so much. But just as we have made adjustments and reasserted ourselves on the basketball court, the United States can still be a powerful force in international manufacturing.

This post originally was published first on Inside Resources and is republished with permission here.

markit us manufacturing flash PMI MayDespite a dip in new orders and export sales, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) was up from 55.4 to 56.2 in May.

The output index rose from 58.2 to 59.6, making May the fastest pace for output growth seen since February 2011, and according to the National Association of Manufacturers’ Shopfloor blog, a sign that American manufacturing is rebounding from “weather-related softness” earlier this year.

Output rises at fastest pace in over three years. Some Key points:

The Data was collected 12 – 21 May 2014.

Operating conditions in the US manufacturing sector continued to improve during May, with strong rises in production and output complemented by further payroll growth. After accounting for seasonal factors, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™(PMI™) improved to 56.2 in May, up from April’s 55.4. Moreover, the latest reading was the strongest recorded by the survey for three months.

Flash U.S. Manufacturing PMI™ Summary

50.0 = no-change on previous month (seasonally adjusted)

Index May’14 Apr’14 Change signalled
PMI 56.2 55.4 Expansion, faster rate
Output 59.6 58.2 Expansion, faster rate
New Orders 58.2 58.9 Expansion, slower rate
New Export Orders 51.5 51.7 Expansion, slower rate
Employment 53.5 53.7 Expansion, slower rate
Backlogs of Work 55.9 55.2 Expansion, faster rate
Output Prices 50.4 50.9 Rise, slower rate
Input Prices 56.3 53.5 Rise, faster rate
Stocks of Purchases 51.8 48.7 Expansion, change of direction
Stocks of Finished Goods 47.7 49.1 Contraction, faster rate
Quantity of Purchases 59.2 56.7 Expansion, faster rate
Suppliers’ Delivery Times 46.8 49.5 Lengthening, faster rate

Decreases in new orders (58.9 to 58.2) and export sales (51.9 to 51.5) were slight, but still indicate growth, albeit at a slower rate.

Other numbers making news?

What are your thoughts on the Markit Flash numbers in US Manufacturing? Let us know in the comments section below.

Five economies traditionally regarded as low-cost manufacturing bases China, Brazil, the Czech Republic, Poland, and Russia have seen their cost advantages erode significantly since 2004 while US Manufacturing has considerably improved its cost structure, according to a new study released Friday

us manufacturing competitivenessThe erosion in the cost advantage has been driven by a confluence of sharp wage increases, lagging productivity growth, unfavorable currency swings, and a dramatic rise in energy costs, states the Boston Consulting Group (BCG) based on a study of 25 nations that account for nearly 90 percent of global exports of manufactured goods.

BCG’s Global Manufacturing Cost-Competitiveness Index has tracked changes in production costs over the past decade on the basis of wages, productivity growth, energy costs, and currency exchange rates – four direct economic drivers of manufacturing competitiveness.

“Manufacturing cost competitiveness around the world has changed dramatically over the past decade so dramatically that many old perceptions of low-cost and high-cost nations no longer hold,” states the BCG report.

The BCG index now rates Brazil as “one of the highest-cost countries”, and the UK as “the cheapest location in western Europe”.

Mexico now has lower manufacturing costs than China, whose manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent (5%). Costs in eastern European nations are at parity or above costs in the U.S while costs in much of eastern Europe are basically at parity with the U.S, states the BCG report.

Part of BCG’s ongoing research into the shifting economics of global manufacturing, the report states that 10 countries with the lowest manufacturing costs “include a mix of nations from around the world.

Six of the 10 are in Asia, while several others are in North America and eastern Europe.

The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe.

The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50 percent fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005.

“Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date,” said Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis.

“They still see North America and western Europe as high cost and Latin America, eastern Europe, and most of Asiaespecially Chinaas low cost. In reality, there are now high- and low-cost countries in nearly every region of the world.”

A handful of countries held their manufacturing costs constant relative to the U.S. from 2004 to 2014 and have significantly improved their competitiveness within their regions.

Declining currencies, along with productivity growth that largely offset wage hikes, helped keep overall costs in check in Indonesia and India.

The UK and the Netherlands, on the other hand, have kept pace thanks to steady productivity growth. As a result, the cost structures of Indonesia and India have improved relative to Asia’s other major exporters, while the UK and the Netherlands have boosted their cost competitiveness relative to other exporters in western and eastern Europe.

“While labor and energy costs aren’t the only factors that influence corporate decisions on where to locate manufacturing, these striking changes represent a significant shift in the economics of global manufacturing,” said Michael Zinser, a BCG partner who is coleader of the firm’s Manufacturing practice.

“These changes should drive companies to rethink their sourcing strategies, as well as where to build future capacity. Many will opt to manufacture in competitive countries closer to where goods are consumed.”

The findings have implications for both companies and governments as they consider their manufacturing options. Several countries that have lost ground since 2004 risk becoming even less cost competitive if current wage and productivity trends continue.

In some nations with low direct-manufacturing costs, BCG found that competitiveness could be undermined by other factors, such as a difficult business environment or poor logistical infrastructure.

You can download the entire study and the eBook now for FREE on your kindle at Amazon here.

Majority of Large Manufacturers Are Now Planning or Considering ‘Reshoring’ from China to the U.S.

This study by the Boston Consulting Group supports a previous report on why large US manufacturers are reshoring production back to the US from these previous low cost manufacturers.

More than half of US manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the U.S. from China or are actively considering it, according to a new survey by The Boston Consulting Group.

The share of executives who are planning to “reshore” or are considering it rose to 54 percent, compared with 37 percent of executives who responded to a similar BCG survey in February 2012. The new survey, conducted last month, elicited responses from more than 200 decision makers at companies across a broad range of industries. Virtually all of the companies manufacture in the U.S. and overseas and make products for both U.S. and non-U.S. consumption.

The survey also found a sharp increase in the percentage of executives who are actively engaged in the process of shifting production to the U.S. When asked whether they expect to move production in light of rising wages in China, 21 percent of respondents—around twice as many as in 2012—said they are “actively doing this” or that they “will move production to the U.S. in the next two years.”

The increase in willingness to reshore supports earlier BCG findings that are part of the firm’s Made in America, Again series, produced by its Operations and Global Advantage practices. The series explores the shifting economics of global manufacturing and how the changes are starting to favor the production of certain goods in the U.S.

In a report released in August, Behind the American Export Surge: The U.S. as One of the Developed World’s Lowest-Cost Manufacturers, BCG projected that production reshored from China and higher exports due to improved US manufacturing competitiveness in manufacturing could create 2.5 million to 5 million American factory and related service jobs by 2020.

“Over the past couple of years, we’ve projected an improvement in U.S. manufacturing competitiveness by 2015 that would help drive an American manufacturing revival,” said Harold L. Sirkin, a BCG senior partner and a coauthor of the study. “The results of our latest survey make clear that a profound shift in attitude is beginning.”

The top three factors cited as driving future decisions on production locations were labor costs (cited by 43 percent of respondents), proximity to customers (35 percent), and product quality (34 percent). More than 80 percent of respondents cited at least one of these reasons as a key factor. Other leading factors include access to skilled labor, transportation costs, supply-chain lead time, and ease of doing business.

“The wide range of reasons executives cite for shifting production shows that companies are becoming more sophisticated in their understanding of all the factors that must be considered when deciding where to manufacture,” said Michael Zinser, a BCG partner who leads the firm’smanufacturing work in the Americas. “When you look at the total cost of production for many goods, the U.S. appears increasingly attractive.”

“These findings confirm that the reshoring trend is more than anecdotal,” said Justin Rose, a BCG partner who along with Sirkin and Zinser is a coauthor of The US Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback(Knowledge@Wharton, 2012). “As the costs and benefits become more apparent, we expect more companies to consider manufacturing in the U.S. if their products are to be consumed in the U.S.”

US Manufacturing Reshoring Infographic

US  manufacturing companies have long offshored operations due to dramatically lower labor costs in emerging markets. Today’s changing economic landscape abroad and at home has sparked a reversal. “Reshoring,” bringing manufacturing back to America, is now a bona fide movement. Management and technology consulting firm West Monroe Partners dove into this emerging trend to identify how it started, where reshoring is today and where it’s going.

us manufacturing reshoring infographic

If you have followed the Cerasis blog over the last year, although we are a third party logistics provider, our goal to our readers is to not only talk about what we do, logistics and freight management, but to bring news and best practices which affect our customers: Manufacturers and distributors (or those who ship freight in North America). In this same period of us starting our first year of the blog, we have also seen many great things come out about the growth and recovery of US Manufacturing. These subjects we have written about at length, such as our Skills Gap series, our Reshoring series, and all the posts you can find in our manufacturing category.

In Today’s posts, we want to wrap up some of these subjects and provide the hard facts that show that the US Manufacturing sector continues to put it’s collective head down and focus on long term sustainable growth.

Facts: US Manufacturing Performance Continues to Improve Sustainably 

With all the coverage in popular media outlets over the last few years, it would be hard not to have awareness of a claimed resurgence in the U.S. manufacturing industry. Beyond just a casual awareness, perhaps you also have been exposed to some of the most frequently cited factors driving this resurgence – or at least those that the press feels you might be interested in tuning in hearing about. As such, you might have come across discussions noting the positive impact of new energy production in North America on U.S. manufacturing. Or perhaps you have been exposed to information explaining that rising wage costs in competing counties such as China have pushed more manufacturing back to U.S. shores. No doubt, there is truth in many of the causal factors in circulation today regarding the improving U.S. manufacturing scene.

But is it true that recent improvements in the health and output of the U.S. manufacturing industry are solely due to factors extraneous to that industry itself? If so, how sustainable is this advertised resurgence? In all likelihood, if this trend truly is based only on extraneous factors that could just as quickly turn against U.S. manufacturing in the future, then the answer to this rhetorical question on sustainability has to be in the negative.

So this leads us to ask a follow-on question: Is there evidence of sustainable performance improvement from within the U.S. manufacturing industry itself that could also be contributing to its revived presence on the global stage? We are happy to say the answer to this question is most definitely in the affirmative. As an example, let’s review the latest findings on performance improvements within U.S. manufacturing from a recent study that was jointly conducted by MESA International (MESA) and LNS Research (LNS).

In an article published by LNS, an analysis of the most recent (2013) results from the “Metrics That Matter” survey by MESA was presented (MESA has conducted this annual survey since 2006 with a broad spectrum of manufacturers globally). This analysis endeavored to uncover findings in that survey that offered insight into what areas were contributing the most to performance improvements within the US manufacturing community. From that analysis, eight high level areas of performance improvement were cited, each of these eight areas themselves being derived from a much larger subset of data tied to detailed metrics and key performance indicators that MESA investigated with its survey respondents. In no particular order of priority, here is a sampling from those eight key areas driving performance improvements from within the US manufacturing industry itself:

As can be discerned from the findings highlighted above, manufacturers in the U.S. have been working hard to improve their competitiveness on the global stage. Certainly overseas competitors have been making improvements as well, but improvements of this magnitude are not easily obtained, especially when using prior year performance in a mature marketplace such as the US manufacturing sector as a basis for comparison. Sustaining future year-over-year improvements such as this within the US manufacturing sector will go a long way in sustaining the rebirth of this U.S. industry, regardless of which direction the winds of extraneous good fortune happen to be blowing.

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