Books written by Ray Sullivan

Sunday, 9 December 2012

Tech Manufacturing Coming Home

Before the First World War, Great Britain as we used to be known were arguably the manufacturing powerhouse of the planet.  The Great War changed that somewhat, but even so, in the inter-war years we were still a formidable manufacturing country.

At the end of the Second World War practically everything was manufactured in the West. The UK, absolutely broke financially by the war, struggled to compete with the US that boomed in the post war years.  Shortly after, thanks to funds released under the Marshall Plan, countries such as Germany and Japan were rebuilt using new machinery.  Leading into the Nineteen Sixties there was a manufacturing boom, broadly based from the United States, across Europe and into Japan.  Consumerism was created.

One of the side effects of all this work - heck, even the UK managed to modernise and start making stuff again - was increased wealth.  This provided the capital to buy all the stuff being churned out - cars, cameras, radios and even colour TVs.  It also created wage inflation and slowly but surely made the labour costs associated with the new economy rise disproportionally.

The rest is history.  Manufacturing shifted eastwards, eventually centring on China where labour costs were minimal and other costs, such as those associated with safety in production, were none-existent.  The boom continued, world consumerism was rampant, we all played along.

And of course, some of the wealth being generated was an illusion that has led to the longest period of decline in decades.  I won't use the word 'austerity' to describe the situation we find ourselves in - If you want to read about real austerity then I'd like to recommend Andrew Marr's History of Modern Britain.  In this excellent book, currently selling at a fair margin above the £1.13 I paid on Amazon's Kindle Deal of the Day a few months ago, Marr describes the conditions in post war Britain and I have to say I prefer this 'austerity' to the one that my parents lived through.  (I'm not suggesting that there aren't people in the UK or US who aren't struggling or that the complaints are trivial, but when I walk through Chester and see masses buying hundreds of pounds worth of goods to give as presents I can't accept that we are suffering austerity - it's just not as nice as it used to be).

Of course it's the cheap eastern manufacturing that has taken the sting out of this extended economic slide, to the point where we all assume that it will always be this way.  Maybe not always China, possibly Brazil or Russia or India, maybe all of them.  Well, the only constant in this world is change, and an unexpected one appears to be making an appearance.

After a couple of years of weathering criticism about the conditions suffered by the employees of the Chinese manufacturing plants Apple have decided to change the game.  They're bringing production back to the US.  Not all of it, not the critical iPad and iPhone production for example, but a significant $100 million investment.  They're not building factories, instead Apple are using existing manufacturing facilities to make the component parts.  And to be truly fair to Apple, there had to be first on this blog, they've been edging this way for over a year as many of their products have been assembled in the US already.

Now I'm sure a lesser blogger would point out that $100 million is a drop in the ocean - it's the equivalent of creaming $1 off the profit margin from every iPad sold worldwide since it was launched less than three years ago.  And given that Apple generally work on a 40% profit margin on their products they can afford the odd dollar.  That, by the way, is why Apple products are so expensive.  Their competitors are cutting their margins to the bone, so don't expect them to be building in the US any time soon.

But this is a promising development; the future can't be getting the cheapest economies to make our stuff forever - I realise that this means we may have to pay more for our techie stuff, or Apple may have to trim its profit margin along with the majority of the developed world. But it is bringing work back to a developed country, one that leads the consumer buying market for the rest of the planet. The third world needs every leg up those of us who are lucky enough to live in the first world can give them, but for that to be sustainable we need to keep the consumer economy viable too


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