One of the things that Donald Trump got right during his campaign was that jobs are increasingly being sent overseas. He wasn’t correct in saying that it was the reason why manufacturing jobs are disappearing though, the vast majority (around 85% according to the Center for Business and Economic Research at Ball State University) were lost to automation and technological advances. The US lost around 5.6m manufacturing jobs between 2000 and 2010, with a huge number of factories closing their doors during the recession of the last 2000s.
This is something that has been acutely felt throughout the world, with South East Asia, China, and Mexico often picking up the 15% or so manufacturing jobs lost by the US. As these countries have increased their manufacturing output and their GDP, their expertise in the area has also improved, with companies now finding that the quality of the work being done by these outsourced workers is better or faster than they originally had in the US. According to the Boston Consultancy, the cost of manufacturing goods in the US is only around 5% higher than in China, but often the original move is so expensive to undo and the ‘brain drain’ so great, that it makes the move back to US manufacturing almost impossible.
Apple, for instance, uses Foxconn in China to manufacture its devices, which in turn employs 1 million people and runs 100,000 production lines, 24 hours per day, 7 day per week. As this operation has increased, the level of expertise needed to manage this workforce to allow for the production of millions of devices has also increased, meaning that should Apple move their phones back to the US, they would lose a huge amount of expertise that would take years to reproduce in the US. It is not controversial to say that for most companies currently manufacturing in other countries, moving back to the US would probably save them money when you consider transport etc, but the quality that they would lose from long-term outsourced partners makes the move too dangerous.
Outsourcing often started as a necessity to allow products to be cheap enough to sell (some estimate that the cost of an iPhone would double if Apple made them in the US) or to beat constraints in their home markets. However, this working arrangement has now become preferable due to the symbiotic relationships built with partners. This relationship isn’t something that is unique to companies who have outsourced, it is something that all companies looking to innovate have found - that strong partnerships are essential for successful innovation.
These kind of partnerships are incredibly useful for both parties as they both move forward, creating growth and opportunities as the relationship progresses, which is exactly what happened with many of the outsourced companies. The best evidence for this comes back to Apple and the media reports surrounding a potential move to create iPhones in the US. The reports that Apple would be making iPhones in the US came from rumours that their supplier, Foxconn, was considering the move, rather than Apple themselves. There was never a discussion about Apple changing supplier and the idea of the tech giant switching to a US company to fulfil this role is beyond comprehension. Both parties have found success through the work of the other, Apple have a consistent, reliable, high quality provider and Foxconn continue to earn billions because of the demand generated by Apple.
It isn’t innovation focussed on only manufacturing either, partnerships are necessary for the majority of innovation activities. A company who are looking to implement a new system of working requires technology that allows the system to work, which often means a technology partner that can adapt on-the-fly, such as a CRM which offers programmers to customize a customer’s product to help with the transition. As this innovation increases company success, the company will create more jobs, meaning more licenses being sold by the CRM.
Often these partnerships aren’t even known by both parties, a company’s innovative practices will likely require something mass produced, such as Microsoft Office, which is trusted by millions of people around the world. In this situation Microsoft are very much an innovation partner, as the quality of their product allows their ‘partners’ to effectively innovate, but they are completely unaware of the relationship.
Whilst we talk about open innovation as an implicit sharing of innovative ideas between two or more parties, the truth is that most innovation partnerships are simply two parties working together for a mutually beneficial outcome. As one company relies on another, if both perform better because of the input of the other, both will grow, bringing further innovation opportunities and further growth still.