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Does offshore manufacturing still make sense?

Feb. 4, 2014
Positive outlook for global automation
About half of industrial-automation supplier Rockwell Automation’s sales are outside of the U. S. We asked Rockwell Automation Vice President of Global Business Development, Joe Kann, for his opinion on some global market trends.

In broad terms, how is the global automation business?

We view 2014 as a more promising year than 2013. If you go back 12 months, the situation in Europe was uncertain, we saw a distinct slowdown in Asia for the first time in a long time, and the U. S. was dealing with the threat of a government shutdown and the fiscal cliff. Now, Europe has stabilized, China has come back a bit, and the business community has become a little more immune, or at least numb, to the situation in Washington.

Is reshoring impacting U. S. business?

To some extent. We see a healthy machine-builder base in North America that we haven’t had for a long time. Innovative companies are doing some pretty interesting work, serving the packaging industry, high-speed assembly, and the like. They tend to make sophisticated, higher-end machines to drive some differentiation versus low-end, offshore producers.

And with the arrival of lower energy prices, we are seeing significant projects involving energy-intensive applications like chemical processing. Until recently, there hadn’t been new chemical-production capacity added in North America in a long time. So that’s one example of reshoring that’s taking place in a major way.

Are global markets more open to U. S. companies?

There are complexities. For example, the government in Argentina suddenly decided to instill onerous terms for imported goods. Brazil has set regulations and tariffs to ensure they get a lot of local investment in developing their offshore energy resources. To accommodate that, we’ve added more local production capacity.

Markets like China have been relatively open for us, but they require our products to carry special certifications like the CCC mark. Many other countries do the same. Each requires some degree of testing, documentation, and review. Some say it’s to protect their local consumers, others say it’s to protect local producers. It’s problematic, but that’s the price you pay to serve a global market. We’re also heavily involved with global standards and trade issues, trying to make the playing field as level as possible.

Are there other hurdles?

Some companies and markets have, shall we say, inappropriate business practices. The world can be a messy place, and you find situations where facilitating payments — bribes and such — are the expected way to do business.

We’re an ethical company and we walk away when that happens. It has cost us some business over the years, but ethical behavior absolutely drives every employee in our company, and we’re very proud of that. This past year, 2013, is the most recent year we’ve received The Ethisphere Institute’s ethical company award.

Regarding technology, we hear a lot about the Internet of Things. Do you expect it to affect the automation world?

There’s clearly a lot of hype around this concept — that everything from your dog to refrigerator will have an IP address and talk on the Internet. That said, we feel fundamentally that in the industrial space there is great value to be added with a secure, connected enterprise using standard Internet and Ethernet protocols.

One of the great value propositions for machine builders is the idea that they can build a piece of equipment and then, over its life, have an ongoing relationship with it even though it sits inside the end-user’s facility. They can let the customer know when it’s going to break down, tell them how to optimize its operation, or download a new security patch when necessary. Insights from networked data also can help machine builders create more-competitive designs. There’s all sorts of value they can wrap around that piece of equipment.

The concept has been around for perhaps 20 years, but historically it was expensive, required special IT infrastructure and in-house experts, and the complexities of remote monitoring were rather cumbersome. Now, cloud-based computation and remote services that let one device talk to another are becoming much more commonplace. We don’t think twice about connectivity around our cell phones. That same ease of connectivity in the factory will make things a lot more practical for companies large and small. And that’s the real game changer. It’s not breakthrough functionality per se but, rather, the ability to create a connected enterprise cost effectively, securely, and in a relatively straightforward way. There’s more to it than just the hype.

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