The Nexus Q: A New Beginning for American Manufacturing?

When Google released the Nexus Q, a media streaming device, in June 2012, the company positioned itself in contrast to conventional electronics manufacturing. Rather than building the devices overseas and then shipping orders from foreign distribution centers, the Nexus Q was designed and manufactured entirely in the United States. As emphasized during our next week in class, this production feature was a management decision made early in the product conception process to gain a competitive advantage over other media streaming devices.

On June 27^th, 2012, the New York Times profiled the Nexus Q to assess whether increases in American manufacturing are aberrations or new manufacturing trends based in conditions of the global market.

WHY AMERICAN MADE

This next week in class we will focus on how and why supply chain management decisions are incorporated early in the product conception process. Or readings highlight how IKEA ensures its efficiency (lowest cost and high volume) by detailing specific vendors and production processes before products are even designed and how Tata Motors built its business model, of reaching rural residents at low cost, by constructing its vehicles in sections which can be combined in auto kits by minimally trained local shops.[1][2]   

The design and manufacture of the Nexus Q in the United States was a strategic decision made early in the development process of the device. The New York Times suggests four primary reasons for this:

1. Increases in labor and energy costs in China

To be competitive, Google wanted the Nexus Q to have low product construction costs. Rising wages and energy costs in Chinese factories made overseas production more expensive than in the past. The United States was considered a feasible manufacturing alternative because, although wages were higher, they were predictable.

2. Increases in transportation costs

To be competitive, Google wanted the Nexus Q to have low transportation costs. Rising oil prices convinced Google that by manufacturing its devices in the United States, it could ship the devices less expensively to customers in North America.

3. Theft of intellectual property

Electronics manufacturing overseas also increases risks of intellectual property theft and leaks. Rather than attempting to maintain positive relationships with foreign suppliers, as IKEA does, Google wanted higher security and safeguards during its design and manufacturing process—security that was only feasible at a U.S. based plant (which ended up being only a few miles from Google headquarters in California).

4. Time-to-market competitive advantage

Google wanted its media streaming device to be highly responsive (a feature of more expensive goods) to public demand. By designing and manufacturing the Nexus Q in California, Google was able to design the product faster and with significantly more flexibility than had it been designed and manufactured overseas. To ensure speed and quality of production, Google sought out and used American suppliers for most Nexus Q components as well. [3]

WILL NEW AMERICAN MANUFACTURING BE A TREND?

The question that arises from the debut of the Nexus Q is, “Will more companies shift their manufacturing divisions back to the United States?

The outcome of the Nexus Q itself may not provide an answer. By August, 2012, Google had halted production of the Nexus Q indefinitely. At $299, the device was too expensive (its production costs with American wages were too high) and critics panned it for being poorly designed (poor quality/uncertain design responsiveness). [4]

Still, in an April 2012 report, Boston Consulting Group suggested that large manufacturing firms are, indeed, considering moving production lines from China to the United States. The study revealed that one third of U.S. companies with sales greater than $1 Billion USD are planning or considering moving manufacturing from China back to the United States. Top motivators for such plans are labor costs, product quality, ease of doing business, and proximity to customers. [5]

This movement has already been seen by Caterpillar, Kubota, and Toyota who have invested over $430 million dollars to build manufacturing plants in the State of Georgia. Rising transportation costs and proximity to the Panama Canal were cited as factors behind the investments. [6]

ADDITIONAL THOUGHTS AND QUESTIONS

Paired with the April report from BCG, the failure of the Nexus Q presents several additional questions that our class may be able to look at.

-If wages in China are not yet equivalent to those in the United States but are rising, when should U.S. firms begin shifting their manufacturing out of China?

- Is the United States the best alternative manufacturing location? If not, what other alternative locations are there?

-How much volume of parts can U.S. suppliers handle? Are any common electronic components unavailable from U.S. suppliers?

SOURCES
[1] Margonelli, Lisa. "How IKEA designs its sexy price tags." Business 2.0, October, 2002.

[2] Brown, John Sealy and John Hagel. "Learning from Tata's Nano: The innovations of the $2,500 car carry important lessons for Western Executives." Bloomberg Businessweek, 27 February, 2008.

[3] Markoff, John. "Google Tries Something Retro: Made in the USA." The New York Times, 27 June, 2012. Internet; Available from http://www.nytimes.com/2012/06/28/technology/google-and-others-give-manufacturing-in-the-us-a-try.html?pagewanted=all

[4] Miller, Claire Cain. "Google Goes Back to the Drawing Board for Nexus Q." The New York Times, 8 August, 2012. Internet; Available from http://www.nytimes.com/2012/08/09/technology/google-goes-back-to-the-drawing-board-for-nexus-q.html?pagewanted=all

[5] "More Than a Third of Large Manufacturers Are Considering Reshoring from China to the US." Boston Consulting Group, 20 April, 2012. Internet; Available from http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-104216

[6] Sams, Douglas. "Caterpiller moving to 'Orkin Tract' megasite." Atlanta Business Chronicle, 17 February, 2012. Internet; Available from http://www.bizjournals.com/atlanta/news/2012/02/17/caterpillar-to-build-plant-near-athens.html?page=all