U.S. success in gaining Nissan jobs could help high-tech industry
Executives have long said America can't compete in building electronic devices. But the migration of carmaking from Japan is a case study in the most unlikely of transformations.
The New York Times
SMYRNA, Tenn. — The dairy farms that once draped the countryside in Smyrna were paved over so Japanese carmaker Nissan could build its first U.S. assembly plant. Eighty miles south, another pasture was replaced by a Nissan engine factory; across Tennessee about 100 Nissan suppliers dot the landscape.
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 Sen. Lamar Alexander, a Republican who was governor of Tennessee when Nissan opened its Smyrna factory in 1983. "They were tentative and awkward even discussing it."
Today, echoes of that conventional wisdom can be heard within the U.S. technology industry. For years, high-tech executives have argued the U.S. cannot compete in making the most popular electronic devices.
Companies such as Apple, Dell and Hewlett-Packard, which rely on huge Asian factories, claim many types of manufacturing would be too costly and inefficient in the U.S. Only overseas, they have said, can they find an abundance of educated midlevel engineers, low-wage workers and at-the-ready suppliers.
A case study
But the migration of Japanese auto manufacturing to the U.S. during the past 30 years offers a case study in how the unlikeliest of transformations can unfold. Despite the decline of American car companies, the U.S. today remains one of the top auto manufacturers and employers in the world.
Japanese and other foreign companies account for more than 40 percent of cars built in the U.S., employing about 95,000 people directly and hundreds of thousands more among parts suppliers.
The U.S. gained these jobs through a combination of public and congressional pressure on Japan, "voluntary" quotas on car exports from Japan and incentives such as tax breaks that encouraged Japanese automakers to build factories in the U.S.
Pressuring technology companies to move manufacturing to the U.S. 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 U.S. has a long history of demanding that companies build here if they want to sell here, because it jump-starts industries," said Clyde Prestowitz Jr., a senior trade official in the Reagan administration who helped negotiate with Japan in the 1980s.
The government could 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 (research and development) 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."
Protectionism is bad policy in today's globalized world, many economists argue. Countries benefit most when they concentrate on what they do best, and trade barriers harm consumers by driving up prices and they undermine a nation's competitiveness by shielding industries from market forces that spur innovation.
The U.S. needs to create jobs, economists say, but it should not chase low-paid electronics assembly work that may be replaced by robots. Instead, it should focus on higher-paying jobs.
"Closing our border is a 20th-century thought, and it will only weaken the economy over the long term," said Andrew 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 U.S. auto manufacturing in the 1980s is an example of how one industry created tens of thousands of good jobs.
Since its first pickup rolled off the line in Smyrna on June 16, 1983, Nissan has produced more than 7 million vehicles in the U.S. It employs 15,000 people in this country.
It makes more than 500,000 cars, trucks and SUVs a year, with the plant in Smyrna building six models, including the soon-to-be-produced all-electric Nissan Leaf.
Other foreign carmakers settled in the U.S.: Honda, Toyota, Hyundai, BMW, Mercedes-Benz and, most recently, Volkswagen — after a failed attempt decades ago. Some of those factories have become among the best in the world. The Nissan engine plant in Decherd, Tenn., for instance, exports engines to Japan.
"Where is Tennessee?"
It was a question, posed by Takashi Ishihara, president of Nissan, to Alexander, then the state's governor.
Alexander, who had gone 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.' " "We were the third-poorest state in the nation back then," Alexander said. "President Carter had told all the U.S. governors to go to Japan and persuade the Japanese to make in the U.S. what they sell in the U.S."
Pressures were growing for Nissan to break out of its manufacturing cocoon in Japan, including currency fluctuations that made exporting more expensive. The final push came from American anger as imports grabbed one-fourth of the U.S. market.
In fall 1980, Congress held hearings to limit Japanese imports. 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 the U.S. to 1.68 million cars annually, a 7 percent reduction from a year earlier. In addition, the U.S. imposed a 25 percent tax on imported pickups.
Rural Tennessee may not have seemed a likely place to build a giant automotive factory, but its location was a selling point. It was far from Detroit and the United Auto Workers — and the Japanese wanted to work without what they saw as union interference.
To train its new U.S. engineers, Nissan flew workers to its Zama factory in eastern Japan. There the Nissan officials, assisted by English-speaking Japanese workers called "communication helpers," imparted the intricacies of the company's production techniques to the Americans.
Early on, Nissan guarded against quality concerns by not relying on parts from U.S. suppliers. Most components were either shipped from Japan or produced by Japanese companies that set up operations nearby.
By 1985, Nissan was confident enough about the quality that it added passenger cars to Smyrna's assembly lines. Gradually, U.S. parts makers were allowed to bid on supply contracts. Even that came amid arm-twisting by Congress, which passed a law in 1992 requiring automakers to inform consumers of the percentage of parts in U.S.-made cars that came from North America, Asia or elsewhere.
Calsonic Kansei of Tokyo opened its first plant in Tennessee in the mid-1980s, and employs about 2,600 Americans making instrument panels, exhaust systems, and heating and cooling modules for Nissan.
"The Japanese suppliers were encouraged to localize production," said Matt Mulliniks, vice president for sales and marketing at Calsonic Kansei in Tennessee.
In the auto industry, the idea that U.S. workers could not match their Japanese counterparts has long since faded.
This year, Nissan held an internal competition to decide where to produce a new Infiniti-brand luxury sport-utility vehicle. The plant in Smyrna was vying against one in Japan.
The winner: Smyrna.
When Apple's chief executive, Tim Cook, took the stage this year 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 U.S.
"I hope so," Cook replied. "One day."
That day came recently for Brazil.
In Jundiai, an hour's drive from São Paulo, a strip of asphalt has recently been re-christened Avenida Steve Jobs, or Steve Jobs Avenue. Alongside is a factory where workers make iPhones and iPads. Brazil got these jobs through tactics the U.S. once used to persuade Nissan and other foreign carmakers to build plants in America: It cajoled Apple and Foxconn with a combination of financial incentives and import penalties.
Like the U.S., Brazil is a big market: the third largest for computers after China and the U.S. 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. By year's end, Foxconn was making iPhones in Jundiai, and it began making iPads there in early 2012, according to Evandro Oliveira Santos, director of the Jundiai Metalworkers Union, whose members work at the plant. Stores now carry Apple products with the inscription "Fabricado no Brasil": "Made in Brazil."
With unemployment high and a growing debate over outsourcing of jobs, manufacturing is on the political agenda. In March, Gene Sperling, director of the White House's National Economic Council, outlined initiatives — including tax breaks for building factories in the U.S., infrastructure investments and going after "unfair trade practices" — to reinvigorate manufacturing. In May, the Commerce Department announced tariffs on Chinese solar panels for selling below fair-market value.
The federal government, however, has generally shied away from addressing the protectionist measures of countries such as China with countermeasures, as politicians once did against Japan.
After the Senate last year passed legislation imposing tariffs on nations whose currency is undervalued — a salvo aimed at China — the bill went nowhere in the House, and Obama administration officials indicated they did not like the proposal.
However, champions of "insourcing" legislation — which takes away benefits from companies moving jobs abroad and provides incentives for those bringing jobs back — said the tenor of the debate is changing.
Sen. Debbie Stabenow, D-Mich., also favors tax breaks, rather than penalties. "I love my iPad," she said. "And I want it made in America."