In the course of curating the stories of entrepreneurs to share with you I have noticed a trend from those inventing physical products. The trend is this: even though they would prefer to manufacture their products in the United States, they have no choice but to go overseas.

The question is why is this?

In a recent Atlantic Magazine article, Making It In America, Adam Davidson tells the story of the current state of manufacturing in the United States.

I was surprised to find out that, unlike what I previously though, it’s only within the past two years that China has begun to dominate the world in manufacturing.

Here is what I’m hearing from the entrepreneurs I speak with when they approach American manufacturers:

• They don’t get called back (I heard this MANY times)
• If they do get a meeting, they are told their idea won’t work
• When they tell the price required to sell their product and make a profit they are told that it can’t be done in the United States

After that the manufacturer is generally unhelpful in seeking a solution.

So what’s a product inventor to do?

I’ve heard of a few solutions:

1. Find a sourcing agent (in China or another country) that has existing connections with manufacturers
2. Find a product that is similar but non-competitive and find out who manufactured it

Seeking a supplier directly I’ve been told can make things complicated especially if you aren’t used to dealing with cultural nuances and quality control. For instance, Kelly Lester told me that she ran low on product and was unable to get more on time because in the region of China where the factory was located, they turned off the power at a certain time each day and all production ground to a halt.

My friend Tim taught English in China for 6 months and said the same is done with water.

Good things to know when creating expectations for your customers.

The Trend Will Continue

In the Atlantic article linked above I found it interesting that high-tech manufacturing continues to be done in the United States, though I’ve heard stories of high-tech factories popping up in the Philippines and other low-cost countries. This means that non-high-tech manufacturing continues to go overseas where the labor is much less expensive.

For instance, in Thailand where I currently live, the average salary for a college graduate is between B8000 and B1000 baht. While the exchange rate at times is unfavorable and the Thai baht has remained strong, it’s currently exchanging at around 30 baht/US dollar. So these kids (am I old enough to call them kids?) are paid between $266 and $334 US dollars per month. If you’re lucky you can get an awesome job that starts at around B15,000, or $500.

Now you can argue that the cost of living is lower here, and to some extent that’s true. If you eat “street food” a single person can have a small meal for $1 or $2 dollars. We have an Italian place we love where the chef worked at the Four Seasons. They have the best pizza and tomato sauce in Chiang Mai and dinner for my wife Kookkai and I cost around B600, or $20. Not bad for a fantastic meal.

However this is far outside the reach of the “common” Thai person you meet. When you make $266/month you don’t spend $20 on a single meal. You’ve got other expenses like rent, electricity and water to consider.

Having said that, this year Thailand experience far above average rainfall and Bangkok, where many factories are located, were flooded, causing major issues for Toyota, Sony and other companies.

But will the move of “low-skill” manufacturing jobs to lower-cost countries cease? Not that I see and not according to the Sarah Lacy, Fareed Zakaria, and Thomas Friedman whose articles I’ve linked to below.

What This Means For You

One of the considerations of when we return to the US is how long we can stay in Thailand before my wife and I begin to fall behind in terms of the latest and greatest innovations. America continues to be a nation of entrepreneurial innovators and frankly I want my daughter to grow up in that environment.

Is the country perfect? No! But what country is? Every place has it’s problems; some more than others.

With these trends – continued advances in technology replacing “lower skilled” workers and the move of low-skilled manufacturing to low-cost countries – I see a few imperative for my fellow entrepreneurs and Americans:

1. We all need to continue to educate ourselves. Never stop learning new things, and go beyond your main topic of interest. Learn new things.
2. Whether it’s in manufacturing or otherwise, technology is in every facet of our lives. If you can embrace, understand and utilize it you can move ahead faster
3. Our education system (in the US and I will say in other countries as well) needs an update. MIT is ahead of this trend with the launch of MITx as is the Khan Academy, both with online curricula
4. Take action. One of the  traits that signifies and separates entrepreneurs is that they take action. Learning is all well and good but if you never put it to use it won’t do you or anyone else any good

More Reading

Here are three articles I recommend you read on the outsourcing of manufacturing to China and what it means for Americans in the near and long-term future. These articles discuss to one level or another what it means for jobs and (sometimes indirectly) education.

Why China Wins – Sarah Lacy, Pando Daily

Average Is Over – Thomas Friedman, NY Times

The Case for Making It in the USA – Fareed Zakaria, TIME Magazine

About Robert Dempsey

CEO & Founder of Dempsey Marketing, web developer, avid reader, proud father and husband. I get a lot of stuff done.

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