Thursday, May 29, 2014

U.S. Discovers “Factoryless Goods Producers”

When the U.S. government tries to keep track of where manufactured goods come from, it takes a 19th-century attitude. If you are the original seller of a manufactured product, government statistical agencies assume you must own the factory where the product is made, and employ the factory workers. If you have things made but are are not the factory owner, it causes no end of confusion for official statistics.

Yet it has been a conventional business approach for at least half a century for “manufacturers” of products to outsource the actual manufacturing. I think first of book publishers and record companies. Most businesses in these categories had given up their factories by 1970. Today, if you were a book publisher that also owned a printing plant, people would say, “Wow, that’s unusual.” If you look at the way clothing and electronics are made, and have been at least since 1990, you are likely to see a similar pattern. The company that owns the brand, the designs, and the finished products is not necessarily the same company that owns and operates the factory. Indeed, the factories could easily be in another country entirely.

The Bureau of Labor Statistics says it is looking into the question of “Factoryless Goods Producers” (FGPs), generally including any business that:

  • Owns rights to the intellectual property or design (whether independently developed or otherwise acquired) of the final manufactured product
  • May or may not own the input materials
  • Does not perform transformation activities
  • Owns the final product produced by manufacturing service provider partners
  • Sells the final product

The general thought is that FGPs should be included in the manufacturing sector but kept separate from factories. It is apparently a complicated question, though, as the Bureau says we should not expect any changes in official statistics before 2017 at the earliest.