OFFSHORED JOBS- WILL THEY COME BACK?

Offshored jobs -- On the way home?

 

An excellent article in last week's Economist provided a fascinating examination of where we might be heading in these areas. In the 80's many Western companies with " high" labour costs moved their operations to low cost areas of the world, this off shoring ( moving an existing operation to another low cost country) was often combined with the process of outsourcing (ensuring that a part of your existing operations was isolated and then transferred to be the responsibility of a third party at usually a reduced cost to the remaining part of the business ( at least that was the intention). The arguments for what commenced in the 80's, at least in cost terms, are becoming weaker. Wages in China and India have been rising by 10%-20% per annum over the past decade, whilst ours have stagnated.

 

Rising transport costs and the fact that your favourite I Phone could take 6 weeks to reach our shores have gnawed away at any cost advantages that existed before. Manufacturing products far away from one's R and D base can have a negative effect on innovation and moving one's R and D to a low cost country many not be a good move in protecting one's IP. There are now stronger arguments to move production back to areas which consist of those people who will purchase your products. You can innovate quickly and transfer that innovation into modernised product outputs for local markets where your products will be bought. In the future, labour costs will become less significant as proportions of product costs, so the search for low wage economies will become less relevant.

 

In service industries IT and back office functions were outsourced and off shored to places like India. This consisted of call centres, programming,data centre management and analytics. After initial success there have been problems with some of these moves in terms of responsiveness, quality and time taken to deliver these services. This meant that service outputs had to be checked and rectified in some instances and this negated any real cost gains.

 

In 2015 it is expected that manufacturing costs in China will be similar to those in many parts of the United States.It has also been stated that pay for senior managers in China,Turkey and Brazil now either exceeds or matches that in the United States and Europe. So the main reasons for re-shoring production to the Unites States and Europe include:

 

1. Rising Chinese labour costs and a desire to respond  more quickly to customers

 

2. Lower wage levels in the US and Europe

 

3. Reduction in transportation and logistics costs

 

4. Production quality problems in off shored production locations.

 

The off shoring rebound is in reality still a trickle and not a flood but the future signs are there. Future developments in robotics may make a lot of routine IT and call centre jobs capable of being performed by machines.

 

In terms of off shoring the narrowing of global costs between the US\Europe and Asia will offer the US\Europe the chance to get back some of the jobs which have gone elsewhere. But we will have to be in a position to compete hard on non-labour cost elements. The most important factors where we can make a difference is ensuring that our labour force has world class skills and training and is flexible and motivated with world class industrial\service industrial clusters.

 

Paradoxically, the training measures we need to take will require investment in human capital - A course of action that we appear to be increasingly unwilling or more realistically unable to take.

 

Where is plan B when you need it?