GE's Billion Dollar Gamble on Reshoring

The trend over the past several decades has been unmistakeable...manufacturing jobs in the United States have been moved offshore. That trend can easily be seen in one of America's blue chip companies, General Electric (NYSE: GE). At the end of 2011, a good number of its employees – 170,000 of 301,000 total – resided in countries like South Korea, Mexico and China.

However, GE has been one of the major companies leading the charge to bring manufacturing jobs back home to the U.S or 'reshoring'. Since 2009, the company has created 13,500 new jobs in this country with 11,000 of them in manufacturing. Overall, the United States has added 429,000 factory jobs in the past two years, barely replacing a fifth of the jobs lost during the recession.

And now GE is placing a large bet - $1 billion – on the company's domestic appliance business. This business, together with its lighting business, accounts for 6 percent of General Electric's revenues.

This will be a tough mountain for GE to climb. The North American appliances business is pretty much a no growth business. According to two of GE's appliances rivals, Whirlpool Corporation (NYSE: WHR) and Electrolux AB ADR (OTC: ELUXY) total sales in North America fell by about a quarter between 2006 and 2011. Whirlpool expects sales this year to grow by no more than 3 percent. No surprise then that this division's profit margin was only 3.5 percent last year, much less than the 15 percent or higher GE's other industrial divisions achieved.

GE is moving its appliances business back onshore because it found out, in the words of the chief executive of GE Appliances Chip Blakenship, that “over time [offshoring] wasn't that sustainable a business model” after enjoying the one-off cost benefit. These benefits have largely disappeared as wages have risen in China. When adjusted for productivity, U.S. wages will be only 2.5 times Chinese wages versus 4.6 times in 2006, according to the Boston Consulting Group. In addition, GE found that an extended supply chain generates some of its own problems due to higher energy costs.

The company decision to reshore these appliance manufacturing jobs back to the U.S. was based on several factors such as $17 million in tax incentives. But the main reason was the adoption of “lean” manufacturing techniques that make its U.S. plant in Louisville, Kentucky more efficient.

The interesting note here is that these techniques were pioneered by Japanese automaker, Toyota Motors ADR (NYSE: TM). These techniques also mark a dramatic shift away from the six sigma management culture at the company instituted by former CEO Jack Welch. Instead of a top-down management style, Toyota's methods places a stress on staff at all levels to focus on raising performance.

At GE's Louisville facility, the “lean” manufacturing techniques have meant putting all the functions associated with manufacturing appliances onsite such as development, design, engineering, quality control and production. GE's CEO Jeff Immelt said that, by using these lean production techniques, its Louisville plant has cut by 68 percent the time needed to build a dishwasher. Thanks to being 'lean', employment at the plant is expected to jump from about 4,100 today to 5,000 next year.

But as stated before, it will a tough go for GE. About half of all the appliances sold in the United States are imported. Korean competitors like Samsung and LG will be difficult to beat, not to mention Sweden's Electrolux and US-based Whirlpool. American workers surely hope that GE will be successful. As will its shareholders who would enjoy an upgrade in its brand if its $1 billion appliances gamble pays off.

Apple's SIM Card War

Not much has changed at Apple (Nasdaq: AAPL) since Steve Jobs lost his battle with cancer. The company is at again, trying to dominate its competitors. This time the battle is for the tiny sim cards which go into every mobile phone.

Apple is again butting heads with the likes of Nokia ADR (NYSE: NOK), Research in Motion (Nasdaq: RIMM) and Motorola Mobility Holdings (NYSE: MMI), which is being acquired by Google (Nasdaq: GOOG) to have its standard adopted for the next generation of slimmer phones. The goal is to have its “nano-sim” lead the technology revolution in the miniaturization of smartphones.

“Micro-sims” (not an Apple product) are currently the standard in phones such as the iPhone. The new nano-sims are thinner and about a third smaller than the micro-sim. Micro-sims must be driving Apple nuts since the company is notorious for wanting to control the entire experience with regard to all of its products. The nano-sims would be made by Dutch company Gemalto in close cooperation with Apple.

This latest battle is taking place in Europe, at the European Telecommunications Standards Institute. Apple has reportedly already gained the advantage over the sim standard offered by Nokia and others because it has offered to the European telecom carriers the design for its nano-sim for free. Apple certainly knows how to win friends.

The competition (Nokia and Motorola) have tried to point out to the telecom companies that Apple's nano-Sim could require a “drawer” to protect it. All phones may then need to be re-engineered with that “drawer” in mind, which would be burdensome to the other smartphone makers not called Apple. Nokia and the others have said that its proposed new sim card has “significant technical advantages” over Apple's nano-sim.

Why does Apple even care about the Sim card? In the past, the company even considered dropping Sims but stayed with them due to opposition from the phone carriers.

Apple is always concerned about the design and usability of its products. A smaller Sim card in the next generation of iPhones and iPads would certainly leave room for other components, such as perhaps larger batteries for the power-hungry devices. But Apple probably has something else more in mind than just adding components to the insides of their devices.

If Apple is successful in its efforts, Apple sees a world someday where iPad and iPhone users would be able to purchase their devices directly from Apple and the phone companies Then consumers could choose the carrier they want and activate the service. Apple is simply using the free sim cards to try to gain more control over an area they currently do not control – the phone carriers. Yes, little has changed at Apple.

This article was originally written for the Motley Fool Blog Network. Please see my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

Hollywood Gets Boost From China

The number of Americans going to movie theaters has dropped sharply over the past decade. According to the Motion Picture Association of America, the number of movie goers in North America has fallen from 1.57 billion in 2002 to 1.28 billion in 2011. There are no doubt a number of reasons for this decline including consumers' ability today to rent movies or stream movies at home.

Box office revenues for Hollywood are also on a downward slope from the North American market. Revenues fell 4% last year, as compared to 2010, to $10.2 billion. Hoped for increases from 3D movies turned out to be a flop as those revenues slumped 18% or $400 million as audiences seemed to reject the high prices for such films.

Like in the movies it produces, Hollywood needs a hero to solve the declining revenue problem. And it has found one. The Motion Picture Association says the answer lies in international markets and especially China. International revenues rose 7% in 2011 while revenues from China rose 35%. Surging box office receipts overseas lifted total global box office revenues in 2011 by 3% to $32.6 billion.

The Motion Picture Association of America says that China is adding eight new screens a day and will add 75 new Imax screens this year. Within a few years, China will have more 20,000 screens which is nearly triple the current total. And unlike many screens here in the United States, the new screens in China are mostly digital and 3D capable. China is also opening its doors to the importation of more Hollywood films in the years ahead.

It is expected that by the end of this year China will surpass the second and third largest movie markets – Japan and India. Most in Hollywood believe that by 2015, revenues coming from China will be in the $7 billion range and that the country will indeed be the largest cinema market by the end of this decade. Look at what the marketing head for DLP (the digital cinema technology arm of Texas Instruments), Tony Adamson, said last year “China could have as many as 100,000 screens and it would not be over-screened.”

So for American investors, what companies will benefit from the growth of the film industry in China. One beneficiary could be the aforementioned Imax (NYSE: IMAX) with its 3D technology being widely accepted by Chinese moviegoers. The lion's share of growth for Imax in China is in the smaller Chinese cities, some of which do not yet have any cinemas.

Another possibility are movie makers like Dreamworks Animation (Nasdaq: DWA) which is building a production facility in Shanghai jointly with several state-owned media companies. Dreamworks and other Hollywood studios have found that the easiest way to have films qualify for distribution in China is to partner with Chinese companies.

For those investors with a large appetite for risk, there is also a pure play on the Chinese film industry, a Chinese film company listed here in the United States – Bona Film Group ADR (Nasdaq: BONA). It started out as a film distribution company and later branched out into film production. Today, it is one of China's biggest non-state-owned film companies along with Enlight Pictures and Huayi Brothers Media Corporation.

So it looks like Hollywood has found a “hero” to solve its film revenue problems for now – China. Another happy ending.

This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.