Mr. China Comes to America

For decades, every trend in manufacturing favored the developing world and worked against the United States. But new tools that greatly speed up development from idea to finished product encourage start-up companies to locate here, not in Asia. Could global trade winds finally be blowing toward America again?

The New Smiley Curve

Above: Woodworking and bookbinding equipment at the San Francisco factory of DODOcase, with founders Patrick Buckley and Craig Dalton pictured in the middle (David Høgsholt)

“Geography is history,” I was told in Shenzhen by Liam Casey, the Irish-born entrepreneur, now in his mid-40s, who founded PCH 16 years ago. (The name is a sentimental allusion to the Pacific Coast Highway in Southern California, where Casey had been living until his failure to get a green card forced him to leave. I’ll say it in every article: America’s greatest strategic advantage is its openness to an outsize share of the world’s talent, and one of its greatest self-inflicted weaknesses is needlessly turning that talent away.) Casey—whose company is headquartered in Ireland and employs some 4,000 people, mainly in China, and this year will handle electronic goods with a retail value of some $8 billion—still lives in the Sheraton Four Points Hotel in Shenzhen, as he did when I met him in 2006. Everywhere he goes, he takes three iPhones with him—one on a Chinese network, one Irish, one American—and I’ve seen him use all three at once. I am several inches taller than him, but I practically needed to run to keep up with his superfast walking pace. I took this as his way of reminding himself and everyone around him that modern business is all about speed.

Here is what Casey meant by “geography is history,” and how it affects the prospects for U.S. manufacturing:

For decades, the process of technology-enhanced globalization has been pushing manufacturing work steadily from richer countries to poorer ones. Casey has had a firsthand view of this transition. As he explained to me when I first met him, “supply chain” interactions like those between Apple and Foxconn, or other famous Western brand names and the tiny Chinese firms Casey lined up as subcontractors, brought benefits to all sides, but in a very particular way. Customers in rich countries got the benefit of cheaper products—an iPhone for $300, for instance, rather than $2,000 if it had been made at U.S. wages. Factory workers in China and elsewhere got their pay.

But the companies involved benefited very unevenly, according to what Casey has named the “smiley curve.” This idea has become so familiar in China that the government alludes to it in the current Five Year Plan. For anyone not familiar with it, the concept refers to the sequential stages in manufacturing a product, arrayed from left to right along a U‑shaped smile. They start on the left with the corporate brand (for instance, Apple), then the product idea (iPhone), then the industrial design, and on through the stages of manufacturing at the bottom of the curve—then shipment, retail, and service going up the other side. The profitability of each stage matches its elevation on the curve—which is why Chinese manufacturers, down at the bottom of the curve, get the smallest share. Globalization has thus far enriched Westerners on the high parts of the smiley curve—designers, shareholders, advertisers, other mainly white-collar professions—but has left out Western manufacturing workers.

A crucial and underappreciated step in this process, Casey and others explain, is the transition from the idea for a product to its physical incarnation, which can then be made and sold. There’s a direct analogy to the world of publishing. Even 10 years ago, having an idea for a book, a song, a political exposé or commentary, got you only so far. To spread your work or ideas beyond your immediate circle of friends required the involvement of a publishing organization. Unless you could persuade an editor, a broadcaster, or a publishing house to promulgate your views, few people would ever hear them. Writing was hard enough; “getting published” could be worse. But now, blogging software and social media of all sorts have eliminated that barrier. Publishing organizations can still provide authority and a megaphone. But more ideas from more people are now being heard by more people.

How does this apply to manufacturing? Blogging software and related technologies have made it easier for entrepreneurs in the realm of ideas to expose their products to a worldwide market test. Three-dimensional printing and related technologies are making it easier for entrepreneurs interested in making physical goods to expose their products to the worldwide market. America has more than its fair share of such potential innovators, thanks to immigration, our still-strong university and public research centers, and the financial and cultural underpinning of a start-up culture. The terrain is shifting in a way that should draw more entrepreneurs to manufacturing and let more of their ideas succeed. This should in turn foster more manufacturing work within the United States than was feasible a few years ago. Companies with the right connections to foreign suppliers and foreign markets will grow even faster.

But rather than simply shifting manufacturing work from rich countries to poorer ones, this latest technological wave should allow all regions to grow. “As business has become faster and more globally connected, that’s been good for American companies overall but bad for America’s low-skilled manufacturers,” Phil Baker, the designer for Apple and other companies, told me. “Now speed and connections allow start-ups to compete with much larger companies, and often beat them.”

Made in San Francisco

“I am betting heavily on San Francisco, for its energy and creativity,” Liam Casey told me in China. He didn’t quote Jane Jacobs, but he went on to present a theory that could have come from her book The Death and Life of Great American Cities: national economies are really a collection of vibrant city economies, and cities thrive when they foster a diverse ecosystem of small enterprises whose growth is mutually reinforcing. He felt that his adopted home of Shenzhen was the engine and the success model for China. “When I came here, Shenzhen was a place to make cheap products,” he said. “Then it became a place to make products cheaply. Now, for the work we do, it’s the only place to make certain products, because of the supply base, the logistics, and the workforce.” (He said that my article about his company, “China Makes, the World Takes,” could, five years later, be redone as “Shenzhen Makes, China Takes.”) San Francisco is his model for how the new manufacturing economy would spread in America. When we spoke, he had just leased a 30,000-square-foot building off I‑280, the former home of the San Francisco Bay Guardian, and announced plans to establish major PCH operations there. “We look forward to fostering the growing community of makers in the Bay Area who seek to have a massive impact on the world through their dedication to design, brand building, and consumer experiences,” he said in a statement announcing the deal.

To put his ambitions in context, let’s consider an existing effort to boost the “community of makers” in San Francisco, a coalition called SFMade. I use it as an example of undertakings on behalf of small manufacturing in several North American cities. This example is different from Casey’s plans in its scale and its level of technology. But it is similar in its emphasis on speed as the key to manufacturing success, and its ambition to help large enterprises grow from small start-up roots.

The Bay Area might seem to display all of America’s imbalances, intensified. Tech and venture-capital billionaires on the Peninsula, hipsters in the East Bay and the city, rich naturalists in Marin, and ordinary families priced out of anything not a distant commute away. Of course, this is a caricature, but it is one that matches the prevailing rest-of-the-world view of a hollowed-out and unequal modern United States.

Into the standard American urban mix—high-end tech and finance, low-end service or tourist work, the professional class from universities and hospital complexes—has come an unlikely renaissance of small-scale manufacturing in the past five years. There is no point in comparing it with anything in China. The 400 manufacturing firms that have factories in San Francisco and are part of the SFMade coalition employ a total of just over 3,000 people, equivalent to a busy week’s intake at Foxconn’s Longhua campus. Apart from the 100-employee LeeMAH electronics firm, founded by an immigrant from China, their products are mainly medium- and low-tech: apparel, high-end food and drink, bags and accessories. This pattern will be familiar to anyone who has followed the growth of light manufacturing in Brooklyn. In San Francisco, more than 120 of the firms were founded during the past three years of overall economic distress; their employment base grew by 10.5 percent last year and 12.5 percent this year; and they have applied in their modest way the principle of drawing on a local base of skilled workers for very fast response to global consumer demand.

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James Fallows is an Atlantic national correspondent. His latest book, China Airborne, was published in May. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

Fallows welcomes and frequently quotes from reader mail sent via the "Email" button below. Unless you specify otherwise, we consider any incoming mail available for possible quotation -- but not with the sender's real name unless you explicitly state that it may be used. If you are wondering why Fallows does not use a "Comments" field below his posts, please see previous explanations here and here.

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