In recent years, the word "outsourcing" has become a term of negation as it relates to U.S. industry and its impact on the global marketplace. As newspapers continue to publish reports of major corporations sending jobs overseas due to skyrocketing labor and health costs, the public's declining trust in the U.S. economy wanes even further, thus subjugating future sales of new products produced by American companies.

But ten years ago ruminations about the term "outsourcing" were not nearly as socially and politically charged as they are today. A historical look at the term and its evolving definition suggests that perhaps outsourcing is merely a logical development in our ever expanding global marketplace. Dr. W.L. Scheller, an associate professor of Industrial and Manufacturing Engineering at Kettering and noted expert on outsourcing, said that the word was first used in the 1980s to describe the contracting of firms to conduct work previously done in-house by companies.

"It was most heavily used in the context of contracting with non-union firms to replace work done by union employees," he explained. "This brought with it the distinct connotation of abandoning the capability for doing the work, as well as simply purchasing from an outside source."

Scheller added that the international connotation for the term eventually developed in the mid-1990s with the implementation of the North American Free Trade Agreement (NAFTA) and through trade with Mexico, where U.S.-based companies could employ low-wage employees in production and manufacturing facilities. Today, Scheller offers a more inclusive definition of outsourcing: giving contracts to a foreign entity for goods or services as a replacement for or alternative to investing in internal production or service organizations. "In management and most professional circles, the term simply indicates a strategy for containing cost," he said. "In the context of labor, and increasingly in politics, the term is somewhat pejorative."

Added to this issue are loopholes in laws that govern trade, which allow foreign manufacturers to basically copy technology patented by U.S. firms and sell knock-off products that are cheaper even though they infringe on U.S. patents. One U.S. industry sector severely affected by outsourcing, patent infringement and lost market share is the electrical and electronics manufacturing industry, which produces electrical and electronic parts for devices such as stereos, digital media players and a host of other items for industries like the automotive field. The Electrical Manufacturing and Coil Winding Association (EMCWA) is a primary representative of the electrical and electronics industry, and is comprised of engineers, company presidents, managers from all engineering disciplines, manufacturing experts, designers and other key individuals. The organization is dedicated to the electrical manufacturing industry through the promotion of the conception, research, design, manufacturing and use of electrical products.

The issue of outsourcing is problematic for members of the EMCWA. Pat Winton, a 1961 graduate of Kettering/GMI, former EMCWA member and president of Globe Products Inc., a manufacturer of machines and tooling for the small electric motor industry, believes the root of outsourcing developed in the early 1980s. In 1983, his company began exporting products to the Republic of China. But today, "the manufacture of high volume small electric motors has left the U.S. and is now done in Mexico and China by international companies," he said. Additionally, an even more distressing signal of this lost manufacturing sector is that Mexico is now losing production to China. "This (loss of production) has caused at least 150,000 lost jobs in the U.S.," Winton added.

It's not difficult to pinpoint some of the reasons for this loss. According to analysts, high labor and health care costs have forced U.S. companies to transfer manufacturing operations to places like China, where labor is extremely cheap. Furthermore, these countries often display little regard for intellectual property rights of U.S. companies and thus copy U.S. made products, then sell them as cheap knock offs in other markets. Robert Sanchez, a magnetic component design engineer for Sandia National Laboratories based in Albuquerque, N.M., and a board member of the EMCWA, echoes Winton's concern regarding the departure of manufacturing jobs to overseas locations. "The U.S. industry has shrunk considerably over the last five years," Sanchez noted. "The coil winding business used to have several large manufacturers in the U.S. with reps who would attend conferences for the industry. But today, we do not see them much at all attending industry events in the U.S."

Part of the reason Sanchez explained is because U.S. companies that outsource jobs and sell products overseas have little concern regarding the duplication of their products by companies contracted in other countries, since U.S. firms still maintain ownership of the original design. "We have no real way to police this situation and prevent it from happening," he said. "Foreign companies that contract with American firms produce their knock offs with little worry."

Answering the tough question This leads to a difficult question: how can U.S. electrical and electronic manufacturers prevent future outsourcing of jobs while protecting U.S. patented products from being copied and sold by companies in other countries?

Dr. Jim Gover, a professor of Electrical and Computer Engineering at Kettering University in Flint, Mich., and a retired senior scientist from Sandia National Laboratories, understands the issues of this situation thoroughly. In his view, U.S. electronics companies continue to move jobs to countries like Chinabecause labor is cheaper and there is little in the way of health care costs. But what is most damaging to the U.S. industry is that China, "has a record of not honoring U.S. patents and there are cases of China bringing in a U.S. manufacturer and duplicating U.S. produced products. What we need to do is create new technology that will be impossible for other countries to duplicate. Unfortunately, simply providing more federal funding to research and design for companies will not stop this from continuing," he added.

Gover noted that one way to increase the number of jobs in this sector in the U.S. is through partnerships established between U.S. universities through the EMCWA and U.S. firms. This partnership with universities helps to increase the technical strength of EMCWA members, make them aware of emerging technologies and create a pool of students EMCWA members might consider for employment. Sanchez agrees with this assessment. "The partnerships developed between firms and universities through the EMCWA are on the right path," he said. "New technology and innovation will make it better for U.S.-based manufacturers. We need to develop micro-technology that will make it difficult for countries like China to copy." Gover and Sanchez agree that one of the best ways to utilize the research capabilities of American universities in conjunction with American firms.

Many analysts believe this is the only way for U.S. manufacturers to regain some ground on the playing field. Research and design is perhaps the only remaining controllable expense companies can work on. But in today's electrical and electronics manufacturing environment, many leading companies engage in global network manufacturing, which means that firms utilize a network of partners from around the world such as U.S. chip makers, Indian engineers and China factories. Unfortunately, this sort of network manufacturing can breed new competition.If, for example, a U.S.-based company hired a small electronics firm to produce a cell phone, that small firm could potentially sell the same phone under its own name in another market. This might lead to a lack of incentive for companies to continue investing in technology and innovation, something both Sanchez and Gover believe could devastate the industry over the long run.

Hope on the horizon?
But all is not hopeless.

Gover, an active member of the EMCWA for several years, continues to encourage the EMCWA board to actively participate with U.S. universities like Kettering for many reasons. As an EMCWA member, he is "exhausted of hearing about the old worn out story that the problem with the U.S. electronics and electrical manufacturing sector is rooted in our country's K-12 education system," he lamented. "The corporate CEOs' basic argument that the U.S. lacks the intellectual resources to compete with foreign companies represents a lack of energy and enterprise on their part. Look at Toyota under the leadership of company President Fujio Cho. Toyota went into Kentucky, a state with one of the worst K-12 education systems in the country, and built a manufacturing team and associated resources whose products have a lower defect rate than those built in Japan."

Gover also explained that major research universities are happy when large companies such as GM build plants in China, because these schools can attract Chinese students to the institution. In addition, the technical program of the EMCWA meeting each fall "is provided largely by the universities supported by the association," Gover said. "The topics are of direct interest to EMCWA member companies. Presumably, EMCWA members learn how to improve their products through the EMCWA meeting." Kettering, for example, became a partner with the EMCWA through the work of Dr. Mark Thompson, a professor of Electrical Engineering at the University. Currently, Thompson manages the distribution of scholarship funding provided by the EMCWA to worthy students and at the 2004 conference, he managed to persuade Mechanical Engineering Professor Brenda Lemke to bring Kettering's fuel cell research vehicle to the conference for display and discussion. Thompson's work with the EMCWA over the years has helped many students afford a college education while developing the skills necessary to become competent electrical and electronics engineers.

This year, in responses to outsourcing fears, the EMCWA will offer an annual exposition under the auspices of the Institute of Electrical and Electronics Engineers (IEEE) Oct. 25-27, 2005, at the Indianapolis Convention Center that will address outsourcing and how companies might look toward the development of new technology. Kettering faculty who will present topics on issues related to manufacturing and outsourcing include

• • • Dr. W.L. Scheller of the IMEB Dept., who will chair a session on outsourcing;
    • Dr. Mark Thompson, who co-authored a paper with a Kettering student who received scholarship support;
    • Dr. Etim Ubong of Kettering's ME Dept. who is organizing a session on fuel cells; and
    • Dr. Gover, who is assisting the general conference chairman in arranging for a well-known official to deliver the keynote address. Additionally, Gover is coauthoring two papers with students and staff from Sandia National Laboratories, as well as giving a workshop on alternative, renewable energy systems.

This conference will help member companies improve their productivity and show how they can reduce the disadvantage of lower labor costs for outsourcing. To learn more about Kettering University, visit www.kettering.edu. For more on the Electrical Manufacturing and Coil Winding Association, visit the website at www.emcwa.org.

Written by Gary J. Erwin
(810) 762-9538
gerwin@kettering.edu.