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GE brings good things back to life

Posted: Thursday, Jan 24th, 2013




I don’t belong to a fairly exclusive group of readers: the one in 200 or so discerning Americans who thumb through every edition of The Atlantic magazine from cover to cover.

But that’s a shame, because every time I do pick up a copy, I always find something that piques my interest and inspires me to think about an issue in an entirely different way.

The December issue of The Atlantic is no exception.

An excellent cover story, “The Insourcing Boom,” tells the tale of General Electric’s surprising decision to shift much of its appliance manufacturing operations back to the United States.

As author Charles Fishman tells it, the move would have been unimaginable just a few years ago.

In fact, the company initially hoped to sell its appliance line, along with a Kentucky industrial park that used to serve as that division’s headquarters. But it couldn’t find any buyers for the sprawling complex, which employed 23,000 people at the height of its operations, before its workforce dwindled to just 1,863 time-card workers in 2011.

Company officials were clearly hoping for a different outcome. But the hand they were dealt turned out to be a great thing for the remaining workforce.

Last February, GE opened its first new assembly line at the industrial park in 55 years.

In doing so, it managed to lower its costs for materials, while improving the quality and effectiveness of the final products, GeoSpring water heaters. It now produces energy-efficient appliances that sell for $1,299 per unit, versus $1,599 for the same model it manufactures in China.

Following that success, another new assembly line began to churn out high-end refrigerators, bringing the industrial park’s total workforce back up to 3,600 hourly employees.

Fishman reports that more jobs are on the way, as GE pursues plans to manufacture stainless-steel dishwashers and front-loading washers and dryers in Kentucky.

Even now, the regional economy is benefiting from the so-called “multiplier effect:” one of GE’s suppliers recently opened a new factory just across the Indiana state line, bringing 195 employees with it.

GE alone is spending $800 million to revamp the aging industrial park, but Fishman notes that company executives are not investing that money out of the goodness of their hearts.

Instead, they believe it makes better business sense than the approach that brought them so much success in the late 20th and early 21st centuries.

Company CEO Jeffrey Immelt has said he believes the trend of outsourcing, or moving jobs overseas, is becoming “mostly outdated” as a business model.

As the years wear on, it’s getting more expensive for companies like GE to make goods overseas, and then ship them to North American markets.

Times may change. But for now, at least, the U.S. is enjoying a competitive advantage on the energy front.

Natural gas prices are four times lower here than they are in Asia, so owners of energy-hungry factories have a greater incentive to shift some or all of their operations back to the U.S.

Oil prices, meanwhile, are three times higher than they were at the start of the 21st Century, forcing companies to think twice before they go to the expense of shipping their goods across the Pacific Ocean.

As overseas energy prices rise, so do other costs of doing business.

Since 2000, wages in China have quintupled, and Fishman notes that they’re expected to rise by almost 20 percent annually in the years to come.

American workers still earn more on average, but in GE’s case, the unions that represent them made concessions that worked in the company’s favor.

Unfortunately for the company’s American workforce, today’s average assembly line employee is starting out at a lower salary than his or her counterpart would have been earning in 2000.

On the upside, the company is bringing jobs back to the U.S., and it now estimates that by the end of next year, 75 percent of its appliance-line revenue will come from its operations here.

Fishman never suggests that GE’s renaissance heralds a return to the glory days of American manufacturing.

At the very least, though, he believes that a modest resurgence of the manufacturing industry will help diversify the economy, while reviving skills that seemed to be disappearing from the workforce.

Indeed, after decades of decline, the industry is cautiously signaling that it’s ready to reinvest in America.

A researcher at the Massachusetts Institute of Technology found that 14 percent of 108 major manufacturers plan to bring at least part of their operations back to the U.S.

Some of them, including Whirlpool, Master Lock and Frisbee maker WHAM-O, have already done so.

As of last February, companies added 334,000 domestic manufacturing jobs over a two-year period. They still have a lot of catching up to do, though, so perhaps it’s still too early to say that insourcing is booming.

But taken together, all of these developments tell me that the American manufacturing industry is ready to put its worst days behind it.

If you’re interested in reading Fishman’s article, go to: http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/.












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