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I think that stands to reason, unless the OP wants to argue it's an innate defect of the Chinese as a race - which, to be clear, I don't think anyone is arguing.

In outsourcing situations where you replace a highly-skilled and highly-paid worker with a low paid one in another country, you often get predictably bad results. Is it a cultural difference? Is it because of the compensation? Or just the attitudes of the companies involved on both sides and the kind of people they hire? I think like any complex issue, there's no one answer, but that last point sounds particularly convincing.

I'm arguing that due to networking effects, having decades of tribal knowledge is worth the cost to keep it. Starting anew elsewhere, even with smart people can sometimes take decades to build that knowledge.

Look at SF, every company competes in that market for software engineers because that's where the talent is.

It's actually a concept explored by the book "The Talent Code", and even explains why so many people from puerto rico (by population) are so amazing at baseball. Everyone plays, everyone looks up to it, and everyone makes everyone else better.

This whole discussion is setting off my BS detectors (your comments specifically, dad with HS degree vs 'the Chinese', etc), and to be honest, the whole tribal knowledge thing may be much more wishful thinking than an actual true effect...

Do the esteemed downvoters care to substantiate their position with anything other than "my daddy said so" anecdotes?

> Look at SF, every company competes in that market for software engineers because that's where the talent is.

No, they bring the "talent" (God, I hate this word and what it carries) from everywhere across the country and abroad. They is no tesseract fuelled talent generator device hidden below SF.

Not a generator per se but a lure. It is a cycle where one feeds the other. People made great things and they needed talent. Talent goes there to hopefully be great those who came before. Repeat ad nauseam.

I think it reflects badly on management planning - that they did first order accounting and found savings, but missed second or higher order effects that affected the accounting in significant ways.

Don't know what to tell you.

All I can say, is my dad recieved a hell of an offer to return (and so did his buddies). The people he trained all had PhD's from various universities around the globe and were supposedly excellent material science engineers. My dad had a high school education, but was trained/worked for decades in this particular field.

The molds that make every component in a MacBook need to be better than those assembling them. The skill to plug in a keyboard or even run a machine to make a keyboard, is not the same as designing or creating the molds of the keyboard. Apple does all of that (to my knowledge) in the U.S. The reason is likely security of their IP and that they have a critical mass of skilled people here, able to out perform elsewhere. Also, it's easy to ship designs anywhere, not so much material goods.

This is super interesting... apparently we have also the lost ability to find specialized welders for many naval vessels... starting salaries are around $300K for the right folks in the US. hell of an offer indeed

Only plastic parts really needs a mold to be produced. Metallic parts are produced on machining machines where the real knownledge sits in the ISO programmer head.

And plastic parts are more and more reserved for low end product, whereas high end products are all made of metal (think about a plane architecture being made of plastic instead of aluminium: this will not happen soon).

So to be honest about your dad situation: from an industrial point of view I think the people outsourcing your dad's job in China were right: they did loose the know-how on keyboards molds and they do face a problem regarding keyboard quality nowadays, but that value gained in outsourcing low end parts was invested in machining technologies with very local jobs garanteed for a long industrial time.

I'm sorry about your dad situation in that systemic change, and I'm glad he managed to move to another field, but what's at stake here is really what a was proposed in a parent comment: 'manual' labour being replaced with automation (and human tragedies involved unfortunately...).

>think about a plane architecture being made of plastic instead of aluminium: this will not happen soon

Actually the trend is towards carbon fiber (reinforced plastic) laid out on a mold https://www.youtube.com/watch?v=wUp9Yl6-QBM

You're right, but that's merely a trend, mainly seen in fablabs and r&d department.

The heavy-duty first-range aeronautic suppliers are all into machining and assembling aluminium (and other metals) parts for boeing/airbus.

I don't know the OP but I think his father is biased. The story is repeated a lot (The Chinese/Indians/Other-Race are cheaper but can't produce the same!) even for Software developers (Indians). In most cases (at least for the software engineering) the problem turns out that the other-race pay was low, and thus attracted low talent. The company probably wanted to cut costs and picked cheap foreign workers that didn't perform.

Tool and die making is the height of machining skill, it takes a very good machinist, the right machine, and the right environment. This story doesn't seem unreasonable.

Cleveland Oh. was the tool & die capitol of the world those jobs started to leave in the 80's and NAFTA and the Great Recession took the rest especially the small ones in Western Pa. As for Molex the Koch's bought them in 2013 but, I haven't followed where or what they have done with Molex. I have used Molex machines in production they were so well made. When I was a kid Cleveland made everything I remember the pride I felt seeing a dump truck the size of 2 houses ( Euc) roll out of the factory back then. It wasn't my fathers generation Silent (Korea) that sent those jobs out of the country it was the generation that followed them !

That doesn't necessarily make the father biased/racist; but I think you're right about the economic incentives at play. Many of the problems I've encountered with Chinese manufacturing can be traced back to stateside managers/purchasers wanting to relentlessly drive the price down, yet still exert the same kind of QC effort (or less) than they did with their former in-house manufacturing. They (mgmt) failed to recognize a lot of informal QC that might otherwise be lumped in with "work-ethic." They also probably laid off the experienced QC and put a jr level engineer/recent grad "in charge", but with little/no authority to do anything. Meanwhile on the Chinese side, the workers work hard, usually with every effort focused on speed. I remember one specific case where an assembler kept ruining chassis because they wouldn't replace worn screwdrivers for the assemblers. They caused lots of rework simply because the Chinese shop manager was too tight to accept that screwdrivers are consumables.

tl;dr Don't rush to blame the workers, they're usually just doing what they've been told to do.

I think that there may be some truth to that narrative. I suspect that Chinese/Indian/Other-Race workers that are skilled at an in demand profession simply shop their work where they are paid commensurate with their skill (Probably not cheap.)

I think there's a lot of truth to that. I've had nothing but bad experiences walking into companies that outsource software to India for cost reasons, and yet I know a number of exceptionally talented Indian software engineers. The difference, of course, is that the talented guys know their worth, and will demand at least above-average compensation. The outsource shops hire down to a price and get pretty much who you'd expect with that practise.

The issue has nothing to do with ethnicity per se, and everything to do with management dreams of hordes of top-notch foreign talent just dying to do high quality work for pennies on the dollar, which in my experience simply doesn't exist.

100% agree. I've had generally negative experiences with work that's been outsourced to Indian shops, but nothing but positive experiences with Indian engineers I've worked with outside that context.

> The company probably wanted to cut costs and picked cheap foreign workers that didn't perform.

The majority of the time, that's the only reason why they're relocating the work. If you have to pay foreign workers equivalent to Americans to get equivalent work, then offshoring is pointless.

> If you have to pay foreign workers equivalent to Americans to get equivalent work, then offshoring is pointless.

Not really Google and MS provide their Indian employees working in India above average market rates which are still lower than what the average American gets.

Some other US based companies directly or indirectly pay their Indian employees average or below average Indian IT salary so the best and brightest dont go there.

It's not a racist thing and your reading it that way reflects a high level of ignorance.

You don't take anyone from anywhere drop them in front of a master tradesman for 12 weeks and have a master tradesman pop out in a few days. The output there is a guy who can probably run the machine and have a limited ability to consistently churn out stuff without understanding the process fully. That's not a reflection of pay, race or talent.

That's usually a big part of the design of the outsourcing arrangement. You train for minimum viable capability. You then just fine the suppliers and eventually you'll get what you need, even if they waste half of the work produced. I've done these with domestic and foreign contractors. It's always the same story. The difference here is that the quality required for tools is higher than end products, and the supplier cannot make money without the high skilled people.

And that high level of difficult to learn skills if tended and protected can yield dividends for generations. Or, one generation can outsource everything including decades of hard learned secrets for a short term boost in earnings by selling for the same price but paying 1/10th the wages so they can cash out millions in stock options.

But then ten years later the workers you trained have now formed their own company and they are the ones making the huge profits, and there's nothing you can do because your country doesn't even have any skills in the field anymore. Now spread this across tens and hundreds of industries.

Sure, we still have software development and other super high tech stuff, but China is figuring much of this out very quickly as well.

I think we'll find out soon enough which country had the better strategy.

Agreed.

The defining quote of this idea came from the Morris Chang, CEO of TSMC:

"You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant."

Source: https://www.forbes.com/sites/stevedenning/2011/11/18/clayton...

Awesome article. Thank you.

Not really. The fundamental problem in the economy is the focus on the short term rather than the long term. The economy focuses on the short term because Wall Street focuses on the short term and will invest in firms with similar short term focus.

Ratio-based investment isn't fundamentally short or long term, and the article doesn't persuasively make that argument. The entire point of selling off your assets to improve profit-to-asset ratios is to improve the performance of your assets, so that they can be put in investments which offer better profits. Whether the new investments are short-term investments or long-term investments is a matter of investor preference, not financial science.

In fact, the argument to be made is that companies which "sell off" their human capital are actually in violation of RONA principles, because the company is not ultimately made of dollars and cents but of people and products, and since the company can't really extract more value out of its highly specialized human capital (I.e. by reassigning it to more productive work), it should not reassign that capital elsewhere.

Investment bankers and programmers tend to make the same error: you are less competitive at manipulating your abstraction (whether that be money or high-level languages) if you do not understand how it abstracts away reality. Otherwise, you will constantly be dealing with leaky abstractions.

I think we're arguing the same thing.

The management people give no shits about the organization as an entity. Their short term outlook is driven by the dumb KPIs that stand in front of their excessive (vs. base) incentive compensation.

You're both right, but you specifically phrase this as a training and institutional knowledge problem, without mentioning nationality. You get to the heart of the problem, without the nationality red herring that tends to attract nativists and racists, to the confusion of everyone.

If it's that easy to move highly skilled positions to the Far East, how do you explain Germany's prowess in high-end manufacturing? Surely all those jobs should have moved to China by now? It's been two generations since Deng opened the country up to foreign manufacturers.

Germans may think beyond next quarters earnings.

Its because most of these companies are small and largely family owned. i.e. the owners understand the product, and moving it to china means they would need to move to china as well.

In many ways the difference is that headquarters is next or on top of the factory instead of in a different state.

Its because most of these companies are small and largely family owned

Sorry I have to question this .. Bosch, Mercedes, BMW? There are a few notables such as Krupps that were once upon a time family owned but increasingly these companies are owned by global conglomerates.

Yes, these companies do outsource many functions to poorer countries but their centre of gravity is very certainly in Germany.

Germany also has an amazing pluralistic educational system. Nobody gets left behind. All state-funded, which I guess follows from the high taxes they pay ... "it takes money to make money", as the man says.

Some is moving to Eastern Europe. Daimler make transmissions and other components in Romania.

When I say "high-end manufacturing" I'm not really talking about cars. More along the lines of industries that require very, very tight tolerances and exotic materials like tooling or optics.

Forget about high end manufacturing.

I play harmonica, and German made Hohner's are considered to be the best. The only quality competitor is Seydel(Again a German company), or Suzuki(Japanese). I think its the overall culture and seasoning to quality and workmanship your ordinary citizens are used to.

The real deal isn't just High end manufacturing.

I know of a relative of mine who used to buy Grundig and Braun radio/taperecorders/stereos in the 80's. The design and quality still comes across way ahead of its times.

Quality shows in everything you build.

Volumes may be profitable for a while. But with lack of quality you won't be able to build BMW's and Airbus's. The kind of manufacturing that has a future.

There's also the question of how the transition is implemented.

My [relative] is [in a tech role] for [large insurer]). They recently laid off all of their in-house tech staff save for her, in favor of outsourcing, and are leaving him to train and guide the entirety of the new staff. Meanwhile, they did absolutely nothing to keep his morale/loyalty, nor to ensure he was incentivized to do this task well. So, unsurprisingly, he's counting the days to retirement and letting the clusterf*s mount.

I'm sure there was a way to handle this that wasn't ludicrously inept; the result, however, will be laid at the feet of the foreign workers that have little training and no access to the now-lost institutional knowledge.

It's not that a specific person, company or whatever failed. It is systematic - the Chinese or anyone else do not have market for high quality molds (or other tools). The end customers want cheap stuff, the manufacturers that make cheap stuff conversely do want cheap tools... turtles all the way down. That means that the molds/whatever are sitting somewhere in the middle, they have to be cheap too and there are corners being cut to make the target price with being good enough.

I think the point is that to get the same quality, you have to look more deeply than just the wages of the given workers. Once you hit that quality, the those workers then step onto the same track of skilled wage growth.

Consider the opportunity cost on the Chinese factory if they crossed Apple. Apple can take the hit and move to another source, leaving the entire factory out a major customer. Even then, counterfeit iPhones are everywhere in China [1][2]. Compare and contrast with the shenanigans Kickstarters have with contract renegging, stolen IP, and plain old fraud [3].

[1]: http://mashable.com/2016/06/17/apple-china-knockoffs/#j5Nyhh...

[2]: http://www.businessinsider.com/inside-fake-chinese-apple-sto...

[3]: https://qz.com/771727/chinas-factories-in-shenzhen-can-copy-...

> Were the Molex molds more complicated than that?

Probably not, and therefore the manufacturer was looking for rock-bottom prices, and thereby got what they paid for.

> It seems that China workers can make Macbooks and iPhones with high precision and low tolerances

thought I read it somewhere that china is literally the only country in the world right now that can do that at scale and change specs as rapidly as apple wants them to.

As far as my (admittedly limited) experience goes, I'd say you're right. I'm currently learning about the intricacies of manufacturing in China through a trial-by-fire of manufacturing some components for our company's first product overseas. We've been told time and time again by advisors, investors, and friends in the industry that it's less money but a whole lot more work.

On the surface, you have to manage extra things like shipping and imports. Under the hood, quality control and partner selection are MUCH more in-depth and difficult processes. If you're not working with someone who already has relationships built, and/or if you're not willing to be very hands-on with the process, from what I've been told you're unlikely to get high-quality, low-cost parts.

I can definitely imagine someone who is used to dealing with manufacturing in the US having a lot of issues adjusting to the way business is done in China if they didn't know what they were getting themselves into.

> It seems that China's workers can make Macbooks and iPhones with high precision and low tolerances according to Apple's specifications.

Isn't Apple's high-precision manufacturing highly automated to a level of expense that no one else would try? IIRC, they have acres of automated CNC mills churning out MacBook cases.

Apple's manufacturing operation is so unique that it's not generalizable.

Yes, the Japanese CNC machine manufacturers Apple uses have entire factories dedicated to Apple-bound products.

Source: http://atomicdelights.com/blog/why-your-next-iphone-wont-be-...

Sure. That capability was built and scaled from the iPod up.

Foxconn didn't start building millions of iPhones. They started with thousands of other products. Same thing happened with Dell. They financed factories for Asus to build laptops and walked away from nearly new plants in the US not long ago for mostly tax and accounting reasons.