Tuesday, January 24, 2012

The NYT, Apple, and Outsourcing

The New York Times has a very very good article about Apple and outsourcing. I've sometimes gotten grief for moving the manufacturing of many of VO's products to Taiwan and Japan. The point that the NYT piece makes, and one I've been trying to explain, is that it's not just about wages or even cost. We can and do have simple thing made domestically and at competitive prices, but complex products are another matter. Offshoring today is more often about being able to have stuff made where the inter-dependent factories, the industrial ecosystems, are located.

Working in a city like Tiachung, where many VO products are made, with dozens of factories making bike related products means that there are fastener factories, and CNC shops, and forging plants all within a few kilometers of each other. There are also plenty of engineers to help us design  products. And that's where we have access to the very expensive testing machinery to make sure our handlebars, cranks, and other parts don't break even after a million fatigue cycles.

Our fender factory may not have the machinery to make the special screws and bolts and brackets that we need, but their friends down the street do. These industrial ecosystems, or manufacturing clusters, are what companies as diverse as Apple and Velo Orange require to be competitive. They are also what needs to be nurtured in the USA if we want to bring manufacturing jobs back.

Paul Krugman makes the point that bailing out the auto industry here saved just these sort of industrial ecosystems, as well as a lot of jobs.


  1. There generally must be a partnership between government and industry in order to foster such industrial clusters.

  2. These are the sort of economic ecosystems pointed out in the Jacobs books, "The Economy of Cities", "Cities and the Wealth of Nations", and "Death and Life of Great American Cities". She progressed from specific understanding about one city to general understanding about cities, and from there to an understanding of how economies work. What I don't know, as a non-economist, is how much this kind of thinking, original in its day, has been accepted by any of the various Establishments in Economics. If Krugman sees it this way, do others, how/ when did this understanding come about, and is it aligned with a particular political or academic group?