Manufacturing and clustering

I rang Emma, suddenly fearful that she and her husband Matthew Rice might bow to the realities of modern management and flee Stoke for Indonesia. "No way!" she said. They\’re building a new factory, only yards from their Victorian one in Lichfield Street, Hanley. "Stoke really works for us. There\’s a brilliant workforce, they\’re so skilled, their shifts are all organised to suit them. And having our manufacturing close by – we live in Oxford – means we can switch it on and off. Manufacturing\’s HARD, you know. You always want to make the things you\’re good at rather than things the customer wants to buy.

"Being in Stoke, we can stop things quickly that the customer\’s not buying, and change. You couldn\’t do that if it was thousands of miles away in China." So why did everybody else go to China? "Lemmings!" she said (it was the only printable part of her answer.)

This is part of the answer as to why China\’s not going to end up manufacturing everything. "Clustering" and economic geography still matter. If you\’ve got a skilled workforce, which Stoke does indeed have, then it can be cheaper to go to where those skills are rather than train up new people….at almost whatever wage rate. There\’s also all of the ancillary skills available. In terms of potteries (about which I know nothing) we might talk about all of the support services like kiln building and maintenance, supply of glazes, of raw materials, as well as the fact that there\’s a huge reserve of skill and talent in the town.

Just as an example, despite the fact that the steel industry has left Sheffield, it\’s still the centre of the steel support industry. Still the centre for ferro-alloys. Because that\’s where the people who know how to make them are.

In essence, we\’re talking about total productivity rather than just labour rate or labour productivity.

As to the second part, about changing production in response to consumer demand. A few years ago my next door neighbours ran a swimwear manufacturing consultancy. I recall asking why they were in Portugal? Surely, all this was made in China, or Mauritius, or Lesotho or somewhere?

Well, yes and no. The basic orders for the season were indeed made in such places. But when they saw what was selling, when they saw what needed to be restocked, then they turned to the factories in Portugal and Spain. For turnaround times (including the all important transport times) were, at the expense of higher wages rates, much lower, enabling them to restock fashionable items while they were still fashionable, still this season\’s. Thus the Portuguese are adding the flexible part to the basic mass production that is done in cheaper parts of the world.

It just ain\’t all about wage rates, which is why we\’re not going to see the disappearance of even textile manufacturing, or potteries, from the high wage world.

7 comments on “Manufacturing and clustering

  1. Thank you for that: very useful observations. In the end, it seems to be all about skill, and skills. Nice to know we still have some.

  2. Some companies operate in niches and high end areas that far East manufacturers can’t reach.

    Some have a business model that use flexibility to compete with the far East in the mid market, Zara is a good case study in clothing manufacture.

    However, this will not provide the vast unskilled labour pool with any work and the resulting underclass grows and grows.

    The high skills are being acquired in China and India, as anyone in the software industry can tell you. In some cases they have the skills already.

    I work in product design, and the Chinese suppliers who used to make parts to our designs are now producing designs of their own. The next step is for them to go direct to customers and that is happening too.

    We are seeing a levelling of pay and standard of living across the world. The Chinese standard of living is rising towards ours and ours is falling towards theirs.

  3. marksaany:

    Your observations are correct. There is an inexorable tendency (called comparative advantage, of course) for everything to get done exactly where it should and for an equalization of wage rates, costs of comparable goods (after transport allowance), and return to capital.

    Much of what governments have been doing for ages (and still) involves attempts to interfere with this generally-ameliorative process at the
    behest of their own domestic pressure groups, whether organized labor, manufacturers, finance, etc.—all counterproductive and one of the primary causes of international conflicts.

  4. Just as an example, despite the fact that the steel industry has left Sheffield, it’s still the centre of the steel support industry. Still the centre for ferro-alloys. Because that’s where the people who know how to make them are.

    Which is why Aberdeen is such a huge centre of oil and gas work long after the North Sea oil and gas fields began their decline.

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