Adidas is closing its American and German "Speedfactories"
Georgia is known for dawgs, peaches, and sneakers... That last part was thanks to Adidas, which opened a highly-automated "Speedfactory" there about 3 years ago. The plan was to produce Boost shoes close to American customers instead of half a world away in Southeast Asia. But Adidas just announced it'll close that Speedfactory and the one in Ansbach, Germany, relocating them to Vietnam and China.
"They took our jobs" sentiment is common... China, Mexico, and other low-wage countries now produce many of the physical goods that America used to. But classic "cost of labor" justification is just one consideration companies make when deciding where to produce:
- Proximity to customers: This is the main reason why Adidas located in Atlanta in the first place. Being closer lets companies produce faster, and ship shorter distances.
- Foreign exchange: Companies love producing in the same country that they're selling in so that they don't need to worry about crazy currency fluctuations.
- Where the supply chain is: This one drove Adidas' latest decision: over 90% of its products are made in Asia, where it enjoys a friendly cluster of suppliers — aka "agglomeration."
This was an expensive mistake... We love that Adidas tried out Made In USA shoes (it followed its comrade BMW's lead — they make their SUVs in South Carolina). But this trial was a failure. The 4-ish-year-old Georgia and German Speedfactories will shut by April, affecting 200 jobs. And this mistake may reveal itself as a billion-dollar cost somewhere in Adidas' next earnings report.