Economist says China not eating Mexico’s lunch
It's interesting to see and think about the chase for low-cost labor… conventional wisdom is that manufacturers have chased cheap labor to Mexico, now China, now onto Vietname and other “Lower-Cost Countries”…. but is this true?
A fascinating book (a “historical” book almost, at this point), is a book about RCA chasing cheap labor across the U.S. from the 60's through the 90's. It's sort of sad tale of repeated promises and repeated plant closures as RCA kept moving on… The book is called Capital Moves.
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The maquiladora program started in the ’60’s and RCA was one of the leaders. They built a large plant in Juarez that employed 7,000 people at one time. Other companies like Allen-Bradley Resistive products, Centralab, Potter-Brumfield followed RCA. They moved technology that was antiquated into a “low cost” market to avoid the capitalization that was required. I worked for Allen-Bradley and we were making products that were developed in the very early 1900’s and all of the equipment was made before 1915. The idea was that you could get a few more years of profit if you dropped the labor cost.
Today’s environment in Mexico has moved toward Lean with a vengeance. There are young engineers who are being educated in improving universities and shop floors of major corporations. Many companies recognize that the cost of labor is not that important, but they have newer factories and a better trained, younger workforce that is willing to adapt.
The dinosaurs: RCA has one large plant still operating, Allen-Bradley closed that division, Centralab was sold and that product is still being made, and Potter-Brumfield is part of Tyco Electronics and they have quadrupled the output of the physical plant by incorporating lean and better technology. They are the history of the maquilas. Some came for the worng reasons and died out. Others came and adapted and got stronger and more successful.
The same will be true of the moves to China, Eastern Europe, India, and Africa. If you are focusing on reducing the 7% of your cost that is the direct labor component of the antiquated cost system you use, instead of working on the 38% that is “Overhead,” you won’t be successful anywhere.