GE: Insourcing is the Next Big Thing
More expensive oil prices, the natural gas boom, rising labor costs in China, and changing union policies have made manufacturing in the United States more profitable than before. “I think the era of inexpensive labor is basically over,” Immelt said at a public event in September. “People that are out there just chasing what they view as today’s low-cost labor—that’s yesterday’s playbook.”
Leaving the preoccupation with cheap labor behind has helped GE solve many problems, but most importantly it has enabled the company to be more innovative; every appliance line that the manufacturer has brought back to the United States has been completely redesigned.
Fishman also noted that the offshore rush, which was one of the “signature economic events of our times,” could have been a mistake. “The way we see it,” said Reshoring Initiative founder Harry Moser, “about 60 percent of the companies that offshored manufacturing didn’t really do the math. They looked only at the labor rate—they didn’t look at the hidden costs.”
GE is not the only company bringing manufacturing back to the United States; Otis has decided to produce its elevators in South Carolina rather than Mexico, Toyota (NYSE:TM) has decided to assemble its Camry sedans in Kentucky and Sienna minivans in Indiana, and Apple’s (NASDAQ:AAPL) Tim Cook announced on Thursday that a line of iMac computers will be manufactured in the United States beginning in 2013.
But Fishman did add one caveat to his assessment of the so-called insourcing boom: business practices are “prone to fad.”
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