Is Insourcing More Than Just Wishful Thinking?

In January, The New York Times published an investigation into how the U.S. had lost out on manufacturing work for products “Designed by Apple in California” but “Assembled in China”. The report cited the sheer scale, speed and flexibility of China’s factories and workforce, and quoted a bleak assessment from Apple founder Steve Jobs: “Those jobs aren’t coming back.”

During its traditional disassembly of one of Apple’s latest desktops, however, repair guide site iFixit noted that “Interestingly, this iMac claims to have been assembled in the USA.” While custom-configured, American-assembled Macs are not unheard of, other reports have also surfaced of new, standard-configuration iMacs bearing the “Assembled in USA” marking. At 9to5 Mac, Seth Weibtraub tried to unravel the mystery:

The “Assembled in USA” label doesn’t just mean that foreign parts screwed together in the U.S. either. The U.S. Federal Trade Commission assumes that a ”substantial transformation” must happen in the U.S. for the label to be used.

Specifically, the FTC states that the label “Assembled in the USA” should be the following:

A product that includes foreign components may be called “Assembled in USA” without qualification when its principal assembly takes place in the U.S. and the assembly is substantial. For the “assembly” claim to be valid, the product’s last “substantial transformation” also should have occurred in the U.S. That’s why a “screwdriver” assembly in the U.S. of foreign components into a final product at the end of the manufacturing process doesn’t usually qualify for the “Assembled in USA” claim.

[…] Perhaps Apple is still outsourcing the manufacture to Foxconn and others, but it is actually assembling the products in a U.S. plant? To the surprise of some, Foxconn has a few locations in the U.S., but it isn’t known if they are actually making anything here.

Weintraub also pointed out another case of an iMac “Assembled in Ireland”.

The discovery coincides with a feature at The Atlantic by Charles Fishman, on America’s “Insourcing Boom”. Fishman explains how rising oil prices and wages in China, booming natural gas production and greatly increased productivity in the U.S., and unanticipated benefits from designing and building appliances in the same location have, in many cases, reversed the logic for manufacturing in China. He focuses on General Electric’s huge Appliance Park facility in Louisville, Kentucky, whose workforce hit a low of 1,863 last year after a 1973 peak of 23,000.

[… T]his year, something curious and hopeful has begun to happen, something that cannot be explained merely by the ebbing of the Great Recession, and with it the cyclical return of recently laid-off workers. On February 10, Appliance Park opened an all-new assembly line in Building 2—largely dormant for 14 years—to make cutting-edge, low-energy water heaters. It was the first new assembly line at Appliance Park in 55 years—and the water heaters it began making had previously been made for GE in a Chinese contract factory.

[…] In the midst of this revival, [GE CEO Jeffrey] Immelt made a startling assertion. Writing in Harvard Business Review in March, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just four years after he tried to sell Appliance Park, believing it to be a relic of an era GE had transcended, he’s spending some $800 million to bring the place back to life. “I don’t do that because I run a charity,” he said at a public event in September. “I do that because I think we can do it here and make more money.”

Immelt hasn’t just changed course; he’s pirouetted.

[…] What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic.

[…] And of course, manufacturing employment will never again be as central to the U.S. economy as it was in the 1960s and ’70s—improvements in worker productivity alone ensure that. Back in the ’60s, Appliance Park was turning out 250,000 appliances a month. The assembly lines there today are turning out almost as many—with at most one-third of the workers.

See also ‘Made in US, But Sold in China‘ at CDT.