An American model for tech jobs

The dairy farms that once draped the countryside here were paved over so the Japanese carmaker Nissan could build its first American assembly plant.

Eighty miles to the south, another green pasture was replaced by a Nissan engine factory, and across Tennessee about 100 Nissan suppliers dot the landscape, making steel in Murfreesboro, air conditioning units in Lewisburg, transmission parts in Portland.

Three decades ago, none of this existed. The conventional wisdom at the time was simple: Japanese automakers would not build many cars anywhere but Japan, where supply chains were in place, costs were tightly controlled and the reputation for quality was unparalleled.

“They were very unfamiliar doing anything outside Japan,” said Senator Lamar Alexander, a Republican who was governor of Tennessee when Nissan opened its factory here in 1983. “They were tentative and awkward even discussing it.”

Today, echoes of that conventional wisdom can be heard within the American technology industry. For years, high-tech executives have argued that the United States cannot compete in making the most popular electronic devices.

Companies like Apple, Dell and Hewlett-Packard, which rely on huge Asian factories, assert that many types of manufacturing would be too costly and inefficient in America. Only overseas, they have said, can they find an abundance of educated mid-level engineers, low-wage workers and at-the-ready suppliers.

But the migration of Japanese auto manufacturing to the United States over the last 30 years offers a case study in how the unlikeliest of transformations can unfold. Despite the decline of American car companies, the United States today remains one of the top auto manufacturers and employers in the world.

Japanese and other foreign companies account for more than 40 per cent of cars built in the United States, employing about 95,000 people directly and hundreds of thousands more among parts suppliers.

The United States gained these jobs through a combination of public and Congressional pressure on Japan, “voluntary” quotas on car exports from Japan and incentives like tax breaks that encouraged Japanese automakers to build factories in America.

Pressuring technology companies to move manufacturing here would pose different challenges. For one thing, Apple and many other technology giants are American, not foreign, and so are viewed differently by politicians and the public. But it is possible and the benefits might be worth it, some economists say.

“The US has a long history of demanding that companies build here if they want to sell here, because it jump-starts industries,” said Clyde V Prestowitz Jr, a senior trade official in the Reagan administration who helped negotiate with Japan in the 1980s.

The government could also encourage domestic production of technologies, including display manufacturing and advanced semiconductor fabrication, that would nurture new industries. “Instead, we let those jobs go to Asia, and then the supply chains follow, and then R&D follows, and soon it makes sense to build everything overseas,” he said. “If Apple or Congress wanted to make the valuable parts of the iPhone in America, it wouldn’t be hard.”

One country has recently succeeded at forcing technology jobs to relocate. Last year, Brazilian politicians used subsidies and the threat of continued high tariffs on imports to persuade Foxconn — which makes smartphones and computers in Asia for dozens of technology companies — to start producing iPhones, iPads and other devices in a factory north of Sao Paulo. Today, the new plant has 1,000 workers, and could employ many more.

Apple and Foxconn declined to comment about the specifics of their Brazilian manufacturing.

“Closing our border is a 20th-century thought, and it will only weaken the economy over the long term,” said Andrew N  Liveris, president of Dow Chemical and co-chairman of the Advanced Manufacturing Partnership, a group of executives and academics convened by the White House who have studied ways to encourage domestic manufacturing.

Although the car and technology industries are different, and the eras are separated by 30 years, the resurgence of American auto manufacturing in the 1980s is an example of how one industry created tens of thousands of good jobs. Since its first pickup truck rolled off the line here on June 16, 1983, Nissan has produced more than seven million vehicles in the United States.

It now employs 15,000 people in this country. Other foreign carmakers settled in America — Honda, Toyota, Hyundai, BMW, Mercedes-Benz and, most recently, Volkswagen — after a failed attempt decades ago. And some of those factories have become among the best in the world. The Nissan engine plant in Decherd, for instance, exports engines to Japan.

“We have 14 companies now that produce light vehicles here, and that is enormous,” said Thomas Klier, a senior economist at the Federal Reserve Bank in Chicago.
“Where is Tennessee?” It was a blunt question, posed by Takashi Ishihara, president of Nissan, to Alexander, then the state’s governor.

Alexander, who had journeyed to Tokyo in 1979 to pitch Nissan on building a plant in his state, was ready with his answer: “I said, ‘It’s right in the middle.’ ” To help out, he displayed a satellite photograph of the United States at night, showing the bright lights shining on the East and West Coasts and the relative darkness of Tennessee.

“We were the third-poorest state in the nation back then,” Alexander said. “President Carter had told all the US governors to go to Japan and persuade the Japanese to make in the US what they sell in the US”Alexander recalled that the Nissan executives were “incredibly anxious” about testing their homegrown production systems abroad. Could the Japanese car companies achieve the same quality using American workers?

In the fall of 1980, Congress held hearings to limit Japanese imports. With tensions running high, Nissan announced plans for the $300 million assembly plant in Smyrna.
That gave the company a head start in circumventing looming restrictions. In May 1981, Japan agreed to limit exports to America to 1.68 million cars annually, a 7 per cent reduction from a year earlier. In addition, the United States imposed a 25 per cent tax on imported pickup trucks.

Success did not come overnight. Many Japanese were skeptical of their new colleagues. Americans, they had heard, were soft, lazy and incapable of mastering the precision manufacturing that had made Nissan great.

Beginnings at Nissan

Early on, Nissan guarded against quality concerns by not relying on parts from American suppliers. Most components were either shipped from Japan or produced by Japanese companies that set up operations nearby. “We felt sourcing parts in the US wouldn’t allow us to make cars in our own way,” said Imazu, the Nissan manufacturing executive.
Nissan’s early doubts are reflected in recent debates over whether American workers can compete with overseas labourers. Within the technology industry, workers in Asia are viewed as hungrier and more willing to tolerate harsh work schedules to achieve productivity.

The numbingly repetitive jobs of assembling cellphones and tablet computers, executives say, would be scorned here; they worry that many Americans would not make the sacrifices that success demands, and want too much vacation time and predictable work schedules.

 Earlier this year, when Apple’s chief executive, Tim Cook, took the stage at a technology conference, he was asked if his company — which once made computers in America, but now locates most assembly in China and other countries — would ever build another product in the United States.

“I hope so,” Cook replied. “One day.”That day came recently for Brazil.
Like the United States, Brazil is a big market — the third largest for computers after China and the United States. It has long imposed tariffs on imported technology products to encourage domestic manufacturing.

Those fees mean that smartphones and laptops often cost consumers more in Brazil, and that domestic manufacturers can be at a disadvantage if their products require imported parts.

In April 2011, Brazil’s president, Dilma Rousseff, traveled to Asia with a pitch, much as Alexander did in 1979. The federal government would give Foxconn tax breaks, subsidized loans and special access through customs and lower tariffs for imported parts if it started assembling Apple products in Brazil, where Foxconn was already producing electronics for Dell, Sony and Hewlett-Packard.

Foxconn agreed. Within months, new Brazilian engineers were flying to China for training. The government hopes to use consumer electronics as a springboard for more advanced manufacturing. Targeting high-tech parts like computer displays and semiconductors could help Brazil reduce its trade deficit in these products and develop a robust homegrown industry, said Virgilio Almeida, information technology secretary at the Ministry of Science and Technology.

US dilemma

Now, with unemployment high and a growing debate over outsourcing of jobs, manufacturing is on the political agenda. In March, Gene B Sperling, director of the White House’s National Economic Council, outlined initiatives — including tax breaks for building factories here, infrastructure investments and going after “unfair trade practices” — to reinvigorate manufacturing. But consumer electronics are different. Though some jobs have moved to Asia, many were never here to begin with. And the biggest technology importers — like Apple, Hewlett-Packard, Dell and Microsoft — are American companies.

Today, many consumers do not know or care where their smartphones are made. “Where it was built, what it means for politics, how it affects the economy,” said Raymond Stata, a founder of Analog Devices, one of the largest semiconductor manufacturers, “that’s not something people think about when they buy.”