Bruce Spurgeon, a Supply Chain Matters guest blogger and current supply chain industry professional called my attention to a Fast Company.com article, Only 3 Percent of What You Buy is made in China; But It’s the Most Important 3 Percent.  It is an article worthy of your reading time.

The premise of the article revolves around a debate, sponsored by The Economist magazine with the premise:  “An economy cannot succeed without a big manufacturing base.” The two debaters were Ha-Joon Chang, a student of industrial policy, and Jagdish Bhagwati, a free trader advocate. Greg Lindsay, the author of the Fast Company article exclaims that the debate was not even close, that as America has stopped manufacturing goods, it has sacrificed the ability to innovate, along with the know-how to come-up with new ways to manufacture goods. A San Francisco Federal Reserve report released earlier pointed out that goods labeled “Made in China” make-up only 2.7 percent of U.S. consumption, with two-thirds of consumer spending on services rather than goods. The notion of the Federal Reserve is that employment growth is not driven from manufacturing that was shifted oversees to places such as China.

This is such an important topic that we wanted to call its attention to our readers and seek an ongoing interchange of discourse on the topic.

Supply Chain Matters is in the camp of Fast Company, that manufacturing does matter, and as we have noted on many occasions, the existence of innovative and vibrant value and supply chains is the real engine for a vibrant economy that fuels healthy job growth. A look at what has occurred in China over the past 8-10 years is a clear indicator of the building of vibrant suppliers across many industry sectors. China’s leaders are purposely steering supply chain capabilities away from low-margin, low-cost goods to strategic, higher growth industries that will fuel economic growth in the coming decades. The Fast Company article points out that America is in serious danger of losing its edge in the cutting-edge technologies that would lift the economy out of recession. American companies may have outsourced some of their crown-jewels of technology and capability.

According to Lindsay, during the debate, Chang pointed to the example of Apple in the computer tablet space.  “Just ask Apple’s lagging competitors in the tablet race. Not one designs its own products in-house, having long-ago outsourced even that task to Taiwanese OEMs. The reason Apple has a media, retail, and service industry empire and they don’t is because it could design an MP3 player, smartphone, and tablet when it needed to–and they couldn’t.”  We found that to be a profound observation in light of last week’s stunning announcement from Hewlett Packard that it was abandoning the tablet and smartphone market after only two months of a product presence. Also noted within the article was that Taiwan ending-up to be the global focus of high-tech manufacturing was no accident, but rather a concerted long-term strategy.

Last week, Internet entrepreneur and investor Marc Andreessen penned an Op-Ed appearing in the Wall Street Journal (metered view may be required), titled Why Software is Eating the World.  Andreessen’s premise, among others, is that companies like Apple, Amazon, FedEx and Netflix are really software companies, fueled by digital capabilities that will eventually subsume physical distribution capabilities.  The premise is that we will all eventually live in a digital world where software and cloud services satisfy all needs. He also points out that many people in the U.S. and around the world lack the education and skills required by these great new companies, which are starved for talent. There lies the conundrum of the argument, software displacing physical manufacturing, displacing supplier innovation and the ability to produce something, and by-the-way, these new software innovators cannot find talent. Andreessen laments Wall Street investors for constantly questioning the valuation and earnings multiples of these new software companies. There is no job growth substance to Andreessen’s arguments, only the premise that consumers will have the wealth and where-with-all to consume a universe of digitally based services. That brings the reader back to the original Federal Reserve premise, a services-based or a manufacturing-based economy?

The debate and the discourse need to continue, so please add your views.  Can an economy succeed without robust manufacturing and vibrant supply chain networks?

Is product innovation, namely the design and production of physical goods, the key to long-term economic growth?

We believe the supply chain community has some answers.

Bob Ferrari