Motor Manufacturing: Design and Manufacturing
Countries- Who is
Ingenuity vs Low Labor Cost CountriesWinning?
(Offshoring
g Trends))
Prepared by:
George
g Gulalo
Muhammad Mubeen
MTT Technical Services
Presented at:
E-Drive
D i Motion
M i Conference
C f
Orlando, FL
January 22
22, 2015
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
1
Background
g
• 2002 surveyy of SMMA member companies
p
defining where and why they manufacture
y
awayy from their home country.
• 2014
2014-- A new look at the same question.
question
• 2002 survey used as a benchmark.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
2
WHAT DO WE HOPE TO GET
OUT OF THIS PAPER?
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
3
Questions Addressed/Answered
ff
• What is the state off offshoring
today,
particularly in the electric motor industry?
• What are the underlying reasons for
offshoring and have they changed over
the last 20 years?
• Has design and manufacturing
engineering followed the offshore
production?
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
4
Research Methodology
• Review of business and academic papers
on the subject. References are imbedded
in the presentation.
• Interviews of executives at electric motor
manufacturers.
manufacturers
• Identification
Id tifi ti off global
l b l location
l
ti off motor
t
manufacturing plants of 21 electric motor
companies.
i
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
5
Offshoring Trends: Table of Contents
•
•
•
•
•
•
Welcome, About MTT and the Authors
What we hope you get out of this presentation
Defining the ‘Shoring’ Terms
Offshoring Trends
Reshoring Enters the Conversation
Summary TrendsTrends- Offshoring
Offshoring--Reshoring
Reshoring-Nearshoring
• Motor Companies on Offshoring
Offshoring//Reshoring
• Some Final Thoughts
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
6
ABOUT MTT TECHNICAL
SERVICES-- A RESOURCE TO
SERVICES
THE ELECTRIC MOTOR AND
MOTION CONTROL
INDUSTRY
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
7
MTT Technical Services
• A network of experienced professionals
focused on the electric motor and motion
control industry.
• Providing market research, strategic
planning and engineering services to the
industry since 1983.
• Many know us as Motion Tech Trends,
Trends the
‘MTT’ in our new name.
name.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
8
MTT Technical Services
• ENGINEERS & MARKETERS IN
ELECTRO--MAGNETIC MACHINES
ELECTRO
MARKETERS who understand
motor generator and control
motor,
technology
teamed with
ENGINEERS who know
applications and markets
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
9
MTT Technical Services
• Clients for our marketing and planning
services include:
• Motor
M t and
d Motion
M ti Industry
I d t Manufacturers
M
f t
– Motors, All Technologies
– Drives, All Technologies
– Controls
– Generators expanding in to motor market.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
10
MTT Technical Services
f our marketing and planning
• Clients for
services include:
• Motor and Motion Industry Complimentary
Components Manufacturers
– Encoders
– Feedback Devices
– Sensors
– Semiconductors
S i
d t
– Integrated Circuits
– Others
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
11
MTT Technical Services
• Clients for our marketing and planning
services include:
• Material Suppliers to the Motor and Motion
Industry
– Magnets
– Metals
– Insulation Material
– Plastics
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
12
MTT Technical Services
• Engineering services include:
• Motor and generator design.
• Drive and control design
g
• Motion system design, optimization,
problem solving.
solving
• Motor forensics.
• Magnetic
M
ti componentt design.
d i
• Prototypes
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
13
MTT Technical Services
• Clients for our engineering services
include:
• Users and suppliers of motors, motion
systems and generators in:
– Aerospace/Defense
– Medical Devices
gy
– Alternative Energy
– Electric Vehicles
– Others
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
14
MTT Technical Services
• Visit us at www.mttusa.com
– Professional Team:
http://mttusa.com/our--team/
http://mttusa.com/our
– Engineering Services
http://mttusa
http://mttusa.com/engineering
http://mttusa.com/engineeringcom/engineering-services/electrical
services/electrical-motors/
Marketing Services
http://mttusa.com/market--research
http://mttusa.com/market
research--strategic
strategic-planning/
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
15
MTT Authors
President project manager
• George Gulalo - President,
manager,
researcher, analyst, report generator.
– Founder of MTT in 1983.
1983
– BEE and MBA;
– Design Engineer at IBM;
– Strategic Marketer at TRW Electronic
Components.
Components
– Project manager of dozens of technical and
market projects for MTT clients
clients.
– Author of over 100 reports (custom and open
market) in the technology and markets of our
focus.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
16
MTT Authors
Researcher Analyst
• Muhammad Mubeen - Researcher,
Analyst,
Strategist. President of Phoenix Technology.
– 25
25+ years in electric motor sales, marketing,
management and long time MTT Associate.
– BEE and MBA.
– President of Carson Technology a supplier of brushless
pm motors.
– VP of Kollmorgen
Kollmorgen’ss synchronous ac pm technology.
technology
– Contributor to dozens of MTT client funded projects.
– Assists companies
p
in strategic
g sourcing
g of magnets,
g
,
rotor assemblies, stator assemblies and electronic pc
boards from Asia.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
17
DEFINING THE ‘SHORING’
SHORING
OPTIONS
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
18
OffShoring Defined
• Offshoring
– SHM
SHM-- Serve Home Market with Company
Products
– SOMSOM- Serve the Offshore Market with
company designed products.
• Both SHM and SOM Offshoring can be
accomplished through the acquisition of a
company located in the Offshore country
making similar products.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
19
ReShoring Defined
• Reshoring
• Moving production from Offshore back to
the home country.
• Expanding
pa d g production
p oduct o in tthe
e home
o e cou
country
ty
at the expense of the Offshore facility able
to produce the same products.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
20
Shoring
S o g Terms
e s Defined
e ed
• Nearshoring
– SHMSHM- Serve Home Market with Company
p y
Products made nearby.
– SOMSOM- Serve the nearby country’s Market with
company designed products.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
21
OFFSHORING TRENDS
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
22
OFFSHORING TAKES OFF
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
23
Offshoring a Two Decade Trend
• It was around the mid 1990’s when there
was broad consideration of relocating
manufacturing to low labor countries
outside of the U
U. S.,
S Western Europe and
Japan.
• Labor costs were dramatically different
b
between
the
h developed
d
l
d and
d emerging
economies.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
24
Average
in
g Wages
g Compared
p
1990: USA/China Ratio
• Paul Krugman of Princeton University,
estimated in a paper ‘Trade and Wages,
Reconsidered, 2005, that the ratio of
wages between the USA and China in the
mid 1990s was:
100/1
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
25
REASONS TO OFFSHORE
PRODUCTION
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
26
Final Criteria for Offshoring Factory
Location
ocat o Selection
Se ect o
Source: Surveyy of Mid-Market C Level Executives byy the Keystone
y
Group.
p
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
27
Offshoring Contributes to Fundamental Change in US Economy
Manufacturing/GDP Growth Ratio
1
0.9
08
0.8
0.7
0.6
0.5
0.4
0.3
1% GDP
Growth
Equals
q
0.94
Manufacturing
0.2
0.1
01
Offhshoring
Takes Off
1% GDP
Equals
0.45
Manufacturing
g
Growth
0
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
Pre 2000
Post 2000
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
28
OFFSHORING CHALLENGES
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
29
Offshoring:: the biggest issues faced included:
Offshoring
Source: Surveyy of Mid-Market C Level Executives byy the Keystone
y
Group.
p
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
30
Challenges
g to Offshoring
g
• Labor costs are rising in many emerging
countries including China, with a ten
percent increase last year. Expect foreign
wages to continue to increase.
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
31
Challenges
g to Offshoring
g
• For many companies, the long supply
chain has been a disadvantage to
offshoring..
offshoring
– Costly
C tl
– Difficult to adjust production quickly to
respond to problems.
problems
– Hard to keep up with fluctuations in fast
moving markets.
markets
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
32
Challenges
g to Offshoring
g
• Managing quality is costly in capital and
management time and effort. Under
investing in quality is risky.
risky
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
33
Particular Challenges
g to Offshoring
g
to China
• Wages ‘soaring’
soaring in comparison to
developed economies and many under
under-developed countries
countries.
• Labor unrestunrest- strikes
• Labor ‘Rights’ Growing
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
34
Particular Challenges
g to Offshoring
g
to China
• Internal demand syphoning Chinese
workers to less demanding (quality,
features, specs) jobs.
• Labor Supply/Demand Favors Demand
– higher quality workers fully employed
– one child policy negatively impacting supply
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
35
A DISTINCT CHINESE
ADVANTAGE IN MOTOR
PRODUCTION: SOURCING
COMPONENTS CLOSE TO
MANUFACTURING
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
36
China Should Not Be Counted
Out
• Despite real challenges to China’s
attractiveness as a offshore manufacturing
haven, there are still advantages to
locating production there.
• Not the least is the well developed
component supply chain.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
37
Co--Author Muhammad Mubeen
Co
• MM is directly involved in sourcing motor
components
p
from China and has these
personal observations:
– Components used in motion control motors and
di
drives
are often
ft sourced
d from
f
llow labor
l b countries,
ti
particularly China.
– Prices offered by Chinese companies are less than
half compared to the prices offered by US
companies..
companies
– Customer
C t
service
i offered
ff d b
by Chinese
Chi
companies
i
is better than what is offered in the U. S.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
38
Co--Author Muhammad Mubeen
Co
– “In
In my opinion,
opinion critical components that go in
to motion control products will continue to be
sourced from China for at least the next five
years.”
years
.””
– Components?
C
t ?
• Shafts
• Machined End Bells
• Magnets
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
39
China Still A Valuable Offshore Target
g
• Significant component production to support
higher
g
value added manufacturing.
g
• The Chinese companies were looking at things longer
term and are quoting low to win the long term
business. A big difference in their business approach
than U. S..
• Improvement in Chinese standard of living has
created a huge market for all goods in China
giving added incentive to locate production there
to serve the ‘local’ market. (SOM)
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
40
TAKING A STRATEGIC LOOK
AT OFFSHORING
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
41
Today, Companies are Taking a More
St t i LLookk att Offshoring
Off h i
Strategic
• Theyy are also doingg a better job
j of
uncovering and anticipating the unforeseen
costs and liabilities which mayy include:
– hidden costs in production and logistics,
– quality control issues and inventory management,
– lead times that may fluctuate and be difficult to
control,
– and duplicative management overhead. .
Source: Survey of Mid
Mid-Market
Market C Level Executives by the Keystone Group
Group.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
42
Today, Companies are Taking a More
St t i LLookk att Offshoring
Off h i
Strategic
• Investing time up front to assess costs
and set realistic expectations will yield
better and more predictable results even
in a volatile environment.
environment
Source: Survey of Mid
Mid-Market
Market C Level Executives by the Keystone Group
Group.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
43
RESHORING ENTERS THE
CONVERSATION
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
44
GLOBAL ECONOMIC
DYNAMICS CHANGE THE
OFFSHORING CALCULATION
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
45
Offshoring a Two Decade Trend
• We have now had about 20 years to see how
it has worked.
• “Now global organizations face the growing
trend of having to rere-evaluate their supply
chain designs largely because of rapidly
rising wages in lower cost countries as well
as increasing supply chain risk.” *
•Source: Michigan State University,
University Call for Papers on “Thoughts
Thoughts on Offshoring Trends
• Shared by Industry Suppliers” referencing Tate, Ellram, Bals and Hartmann, 2009.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
46
Offshoring a Two Decade Trend
• The term ‘reshoring
‘reshoring’’ is now in play
encouraged by populist positions to bring
back jobs to America and the recognition of a
new g
global economic reality.
y
•Source: Michigan State University,
University Call for Papers on “Thoughts
Thoughts on Offshoring Trends
• Shared by Industry Suppliers” referencing Tate, Ellram, Bals and Hartmann, 2009.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
47
Global Economies are Dynamic
The Wage Gap Narrows
• Between 2000 and 2012
– Chinese workers’ wages rose 14.1% per year
– US manufacturing wages rose 3%.
• 2008
2008-- USA/China Wage Ratio 24/1
• 2020
2020-- USA/China Wage Ratio 5/1
(linear
projection)
• This changing calculus should give
companies pause.
Source: U.S. Dep’t of Commerce: http://acetool.commerce.gov/labor-costs
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
48
Relative Wage Changes 2000 To 2010
Chinese Workers
US Manufacturing
W
Wages
2005 to
t 2010
Wages 2000 to 2005
Advanced Western
Economies
Asia
-5%
0%
5%
10% 15% 20% 25%
Sources: BCG (Chinese Workers)
Workers),McKinsey
McKinsey Global (US Mnfg,
Mnfg Advanced W.
W Ecos),
Ecos)
International Labour Organization (Asian Workers)
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
49
Dynamic Global Economies:
Productivity Helps Narrow Cost Gap
Indexed Unit Labor
Takes Productivityy
in to Account
China: 2X
unit labor cost (ULC) defined as the
cost of labor required to produce
one unit of output.
100 = No Change
US: -17%
2000
2012
Source: U.S. Dep’t of Commerce: http://acetool.commerce.gov/labor-costs
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
50
OFFSHORING-RESHORING
OFFSHORINGRESHORING::
THE ACADEMICS WEIGH IN
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
51
Offshoring-- Time to Reconsider?
Offshoring
• Harvard Business alumni survey in 2013,
many firms are still deciding against
basing activities in America.
• Why Offshoring is still viable:
– Offshore wages perceived lower.
– Stay close to customers.
– Challenging business environment in US.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
52
Reshoring Under Consideration
• The Boston Consulting Group (BCG)
surveyed American manufacturing
companies 2012
– 37% of firms , sales > US$1B considering
China to USA shift.
shift
– 48% of firms with sales > US$10B said they
are reshoring
reshoring..
• BCG survey also said:
– adding new production in US.
– add in the U.
U S.
S at expense of Mexico
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
53
Reshoring Under Consideration
• BCG study forecasts in 5 years (2017):
– 47 % of their total manufacturing activities in
US a 7 percent increase over 2011.
– 11 % percent off production
d i capacity
i remains
i
in China a 21 % decline from 2013.
• MIT 2012 study of 108 American
manufacturing firms found:
– 14% reshoring some manufacturing.
– 33% were actively considering such a move.
move
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
54
ECONOMIC DYNAMICS
SUPPORTING RESHORING
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
55
Reshoring
g Driving
g Forces (to
( USA))
• Recession, slower economic growth puts
pressure to reduce labor costs.
• More production happening in ‘right
right to work’
work
states with lesser labor union push on
increased wages.
g
• Pragmatism
g
in the labor movement (only
( y 7%
of USA workforce) allowing wages to fall to
reclaim jobs in USA.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
56
Reshoring Driving Forces (to USA)
• Technology Changes
– Robots costs declined 40 to 50% since 1990
in advanced economies.
– Additive
dd
manufacturing
f
techniques
h
(3D
(
Printing) trading machine time for labor cost.
• Technology changes will reduce some
manufacturing labor demand putting
further pressure on reduced labor prices.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
57
Economic Manufacturing Cost
C
Competitiveness
titi
Index
I d
BOSTON CONSULTING GROUP:
LOOKING AT THE GLOBAL
COUNTRY COMPETITIVENESS
FROM A DIFFERENT ANGLE
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
58
BCG’s Global Manufacturing CostCost-Competitiveness Index
• BCG also studied 25 global economies and
developed a way of assessing their manufacturing
competitiveness using four key dimensions:
– manufacturing wages
– labor productivity
– energy costs
a g rates
a
– exchange
• These 25 economies account for nearlyy 90
percent of global exports of manufactured
goods.
Source: http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-159505
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
59
BCG’s Global Manufacturing CostCost-Competitiveness Index
Less competitive than U. S.
More competitive than U. S.
Source: https://www.bcgperspectives.com/content/articles/lean_manufacturing_
p
gp p
g
globalization_shifting_economics_global_manufacturing/
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
60
BCG’s Global Manufacturing CostCost-Competitiveness Index
• Traditional Low Cost Manufacturing
Countries Losing Ground
– China
– Brazil
– the Czech Republic
– Poland
– Russia
Source: http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-159505
http://www bcg com/media/PressReleaseDetails aspx?id tcm:12 159505
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
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BCG’s Global Manufacturing CostCost-Competitiveness Index
T diti
l Low
L
C t Manufacturing
M
f t i Countries
C
ti
• Traditional
Cost
Losing Ground. Why?
• The erosion has been driven by a confluence of:
–
–
–
–
sharp wage increases,
l
lagging
i productivity
d ti it growth
th
unfavorable currency swings
and a dramatic rise in energy costs.
• China’s manufacturingmanufacturing-cost advantage over the
U.S. has shrunk to less than 5 percent.
• Costs in eastern European nations are at parity or
above
b
costs
t iin the
th U.S.
US
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
62
BCG’s Global Manufacturing CostCost-Competitiveness Index
• High cost countries getting worse (relative to
U. S. manufacturing costs rose 6% to 10%)
–
–
–
–
–
B l i
Belgium
Sweden
France
Switzerland
Italyy
• Why?
y Higher
g
energy
gy costs and low
productivity growth—
growth—or even productivity
declines—
declines
—are the chief reasons.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
63
BCG’s Global Manufacturing CostCost-Competitiveness Index
Steady
• Holding Steady.
–
–
–
–
Indonesia
India
UK
Netherlands
• Reasons:
• Indonesia and India
Declining
g currencies,, along
g with productivity
p
y growth
g
that
largely offset wage hikes; cost structures of Indonesia and
India have improved relative to Asia’s other major exporters
• The
h UK and
d the
h Netherlands:
h l d
Steady productivity growth has allowed the UK and the
Netherlands to boost their cost competitiveness relative to
other exporters in western and eastern Europe
Europe.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
64
BCG’s Global Manufacturing CostCost-Competitiveness
Index
• Rising Stars.
The overall manufacturingmanufacturing-cost structures of
Mexico and the U.S. have significantly
improved relative to nearly all other leading
exporters across the globe.
• Mexico
Mexico now has lower average
g manufacturing
g
costs than China as a result of stable wage
growth and sustained productivity gains.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
65
BCG’s Global Manufacturing CostCost-Competitiveness
Index
• Rising Stars.
• U. S.
Stable wage growth, sustained productivity gains,
steady exchange rates, and a big energy
energy--cost
advantage that is largely driven by the 50 percent fall
in naturalnatural-gas prices since largelarge-scale production of
U.S. shale gas began in 2005.
• Overall costs in the U.S., meanwhile, are 10 to 25
percent lower than those of the world’s ten leading
goods--exporting nations other than China.
goods
China
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
66
PUTTING RESHORING IN
PERSPECTIVE
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
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U. S. A. Market
Market-- Reshoring in Perspective
Th number
b off firms
fi
k
t h
h d”
d”
• The
known
to
have “reshored
“reshored”
manufacturing to America is well under 100.
Doubtless many more are doing so quietly.
• Most of the multinationals involved are bringing
g g
back only some of their production destined for
the American market.
• Much of what they had moved over the past few
decades remains overseas
Source: The Economist Special Report, January 2013
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
68
Challenges
g to Reshoring
g
• Companies that have tried to bring
production back into the United States
often face labor challenges.
• They report difficulty finding workers who
can pass drug tests, do basic math needed
for the job, and come to work regularly.
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
69
Challenges
g to Reshoring
g
• Electricity costs have been rising for industrial
users in the United States, despite
p steeply
py
declining natural gas prices and moderately
declining coal prices.
• The regulatory environment is in many ways less
favorable for businesses in the United States,
especially regarding land use and environmental
rules somewhat offset by less government
corruption.
Source: Forbes Article Reshoring
g or Offshoring
g Trends in Manufacturing
g 2Sep14
p
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
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Challenges
g to Reshoring
g
• Finally, many companies are finding that their
overseas markets are g
growing
g faster than
domestic markets.
• Last year,
year for example
example, emerging economies
grew by five percent inflationinflation-adjusted, while
the United States g
grew byy just
j
two percent.
p
• Those foreign plants make more sense when
they also serve fast
fast--growing countries
countries.
Source: Forbes Article Reshoring
g or Offshoring
g Trends in Manufacturing
g 2Sep14
p
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
71
A LOOK AT MOTOR
MANUFACTURERS
OFFSHORING/
OFFSHORING
/RESHORING
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
72
INTRODUCTION
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
73
Motor Suppliers Offshoring 2002 vs 2014
• In 2002 MTT surveyed electric motor
manufacturers who were members of the
SMMA organization.
• We re
re--visited the offshoring approach of
many of those same companies to see if
the move offshore continues or if has
b
been
tempered
d by
b global
l b l economic
conditions.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
74
Companies Interviewed or Researched in
2002
•
•
•
•
•
•
•
•
A. O. Smith
Baldor
Black & Decker
Bosch--Rexroth
Bosch
Crouzet
Dana
Danaher
Danfoss
Emerson
Groschopp USA
Litton Polysci
Parker Compumotor
Siemens
Shinano Kenshi
Torque
q Systems
y
Yaskawa
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
75
Companies Interviewed or Researched in 2014
•
•
•
•
•
•
•
•
•
•
•
ABB/Baldor
ABB/Baldor
Ametek/Pittman
Ametek/Pittman Motors
Danaher/Kollmorgen
Danaher/
Kollmorgen
Danaher/Pacific Scientific
D
Danaher/Portescap
Danaher/
h /P
/Portescap
P t
D
Danaher/Superior
h /S
i Electric
El t i
Groschopp USA
Moog/Animatics
Moog/Animatics
Moog/Aspen Technology
Moog/Litton Polysci
Moog/Schaefer Magnetics
Regal Beloit, A. O. Smith EPD
Regal
g Beloit,, Cent Electric
Regal
g Beloit,, Fasco Motors
Regal Beloit, Marathon Electric
Rockwell Automation, Motors Only
Shinano Kenshi
Siemens E&A
Wittenstein
Yaskawa
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
76
Manufacturing Locations for US Based Motor
Companies Surveyed/Analyzed
7%
1% 1% 0% Sales
0%
7% 2%
USA/Canada
Mexico
China
29%
53%
Eastern Europe
Carribean/South Am.
Japan
India
Western Europe
All Other Asian
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
77
Number of Offshore Facilities, JVs or Procurement
Arrangements of US Based 2002 Survey Respondents
(Lower Labor Cost Countries Only)
7%
3%
Mexico
28%
China
13%
Eastern Europe
S. E. Asia
Caribbean
C
ibb
&S
South
h
America
India
13%
23%
ROW
13%
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
78
Manufacturing Locations, Low Labor Cost
Only for US Based Motor
Countries Only,
Companies Surveyed/Analyzed 2014
No. of Facilities
4% 2%
14%
17%
Mexico
China
C
a
63%
Eastern Europe
Carribean/South Am.
India
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
79
Number of Offshore Facilities, JVs or
Procurement Arrangements
Based on All 2002 Survey Respondents
3%
3% 3%
5%
31%
8%
8%
15%
China
Western Europe
Mexico
Eastern Europe
S. E. Asia
ROW
Caribbean
South America
India
24%
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
80
Offshore Manufacturing Locations for All
M t C
i Surveyed/Analyzed
S
d/A l d 2014
Motor
Companies
5%
3%
5%
3%
1%
1%
Sales
Mexico
China
48%
12%
Western Europe
USA/Canada
US
/Ca ada
Eastern Europe
22%
Carribean/South Am.
India
Japan
All Other Asian
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
81
Number of Offshore Facilities, JVs or
Procurement Arrangements
of Japanese Based 2002 Survey Respondents
9%
9%
China
South America
S. E. Asia
ROW
9%
73%
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
82
Manufacturing Locations, Low Labor Cost
Only for Japan Based Motor
Countries Only,
Companies Surveyed/Analyzed 2014
Number of Facilities
13%
12%
China
C
a
75%
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
India
All Other Asian
83
THOUGHTS ON OFFSHORING
TRENDS SHARED BY
INDUSTRY SUPPLIERS
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
84
MOTOR MANUFACTURERS
COMMENTS SUMMARIZED
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
85
Motor
Companies
on O
Offshore/
Offshore/Reshore
oto Co
pa es o
s o e/Reshore
es o e
• Motor companies researched have largely
remained Onshore or nearshored
nearshored..
– 85% of Baldor products are made in U. S. but
most of the offshore products are mechanical.
– About 80% of Moog products are made in the
US. Those made offshore are mechanical or
PC Boards. Drives are domestic only.
Ametek/Pittman
/Pittman had the smallest % of
– Ametek
onshore production at 50% with 25%
nearshored and 25% offshore.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
86
Motor Companies on Offshore/Reshore
Offshore/Reshore
• Motor companies fit in to the larger
Offshore/Reshore
Offshore/
Reshore picture.
– Continue to offshore to keep costs down.
g considered but not a big
g push
p
yet.
y
– Reshoring
– Keeping a careful look at escalating labor
costs in low cost countries.
• Few reshoring examples offered. One
company pulled back production for only 3
customers at the customer’s request
(Offshore quality issues.)
issues )
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
87
Motor Companies on Offshore/Reshore
Offshore/Reshore
• Large company policies vary considerably:
– ABB has a policy of manufacturing “In
Country for Country”
– Siemens
Si
finds
fi d centralized
t li d production
d ti more
cost and quality effective.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
88
Some final thoughts.
OFFSHORING--RESHORING
OFFSHORING
RESHORING-NEARSHORING TRENDS:
TRENDS
CONCLUSIONS
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
89
‘Shoring’ Trend Conclusions
• Markets tend to correct themselves searching for
an equilibrium.
• Foreign investments in developing countries that
take advantage of low cost labor and natural
resources help these same developing
resources,
economies to significantly increase their
standard of living and increase wages.
• The result is these economies themselves
b
become
attractive
tt ti consuming
i markets
k t seeking
ki tto
lower costs through, among other avenues,
foreign investment in lower labor cost countries
countries.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
90
‘Shoring’ Trend Conclusions
• Global markets are dynamic and forward
thinking companies will regularly monitor
the changes to assist in strategic decisions
related to production location.
• Economies that are open, innovative and
willing to employ technology strategically
will have, in the long run, advantages over
economies whose competitive advantage
is based primarily on low labor and/or
natural resources.
resources
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
91
‘Shoring’ Trend Conclusions
• US innovation and productivity have
narrowed the unit production cost
between it and low labor countries.
Europe however seems to be falling
behind in this regard.
• The Offshoring rationale is fast shifting
from lowering production costs to sell
goods more cheaply in the home market
to serving the customers located in the
Offshore market
market.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
92
‘Shoring’ Trend Conclusions
• Reshoring is on the rise with some experts
estimating that an equilibrium between
reshoring and offshoring has been
reached, particularly for the U. S.
• Reshoring is more likely to take the form
of increasing domestic production at the
expense of offshore facilities and not the
wholesale substitution of one for the
other.
other
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
93
‘Shoring’ Trend Conclusions
R h i will
ill be
b less
l
d in
i
• Reshoring
pronounced
sectors with strong foreign demand for the
products
d t iin and
d around
d low
l
labor
l b costt
countries
• However,, reshoringg mayy occur in cases
where total global demand is rising.
Instead of closing
g the foreign
g factory,
y a
domestic U.S. factory will add to capacity.
Source: Forbes Article Reshoring or Offshoring Trends in Manufacturing 2Sep14
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
94
‘Shoring’ Trend Conclusions
• Reshoring will also continue for products
that change
g rapidly:
p y
– fashion apparel
– and technology,
• but whose product value/weight ratios do
not justify air freight.
Source: Forbes Article Reshoring
g or Offshoring
g Trends in Manufacturing
g 2Sep14
p
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
95
‘Shoring’ Trend Conclusions
• Nearshoring (to Mexico) has been the primary
approach by U. S. motor manufacturers to keep
product
d t costs
t d
down and
d supply
l chain
h i challenges
h ll
(shipping, management overview, delay in
serving customers) manageable
manageable, when locating
manufacturing out of the country.
• Design and manufacturing engineering has not
followed offshoring production, particularly with
U. S. motor manufacturers.
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
96
Reshoring Potential
• Current research shows many companies
can reshore about 25% of what they have
offshored and improve their profitability if
they used TCO (total cost) instead of the
price of labor to make their decision.
Source: http://www.gilcommunity.com/blog/manufacturing-trends-watch-2014/
p
g
y
g
g
MTT TECHNICAL SERVICES
Authors: George Gulalo and Muhammad Mubeen
97