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Onshoring

U.S. producers consider bringing their work back home. Trade barriers, security risks, international tensions, and currency uncertainties make it tempting. Rising costs in emerging nations may make it necessary. As Americans brace themselves for high prices and higher taxes, is labor willing to take a pay cut to go back to work?

Remember when companies used to save money by building new manufacturing plants in hard-to-find rural locations? If you’ve ever tried to drive from location to location, as I once did, you noticed in a hurry that there weren’t enough people in any one small town to supply the needs of multiple big time employers.  

As a recruiter, I was intrigued at the deliberate trade-off planners made when they got tax credits and a low-wage labor supply in exchange for remote and inconvenient facilities, staffed by folks who had no idea how to do the work they were supposed to do.

The cost and time requirements of transporting everything, absolutely everything, from active hubs out to isolated communities had to be a challenge. And talent and management nearly always had to relocate. I guess those higher costs were worth it. The game has gone on for decades.

OFFSHORING
In its extreme version, offshoring evolved, pushing work wherever in the world that absurdly low costs could be found. In the mysterious markets of international free trade, it was appropriate and cost-effective to create metal castings for the U.S. automotive industry in some distant Asian operation. The raw parts would be shipped to Japan for inspection, shipped to Tennessee for processing, and re-shipped to the appropriate Toyota plant for installation.

That made sense to somebody.

Today, high volume production facilities for industries such as automotive, large appliance, and consumer electronic products all habitually position their supply chains throughout low-cost emerging nations.

SOME DOWNSIDES
There are a few downsides. There are quality problems caused by anything from simple cultural misunderstandings to outright fraud. Delays can be excruciating. Shipping costs and fuel costs are an important factor. Taxes and regulations are a skill set of their own. Currency games are an entire profit center. And security challenges are nearly out of control, as emerging nations accelerate their growth by simply stealing high tech designs and bootlegging them to their vast populations.

And yet, as horrible as all that sounds, it doesn’t take a lot of imagination to compare certain U.S. population centers to third world countries. Detroit, that global center of automotive production, is decimated. A million residents are gone or going. Tens of thousands of abandoned homes are being “managed” back to nature.

I often describe my old home town Flint, Michigan as looking like Bosnia. The published unemployment rate of 14.1% doesn’t begin to describe what has happened to these communities.

Michigan is not alone. In a nation sitting at 9.7% unemployment, we have many broad areas with seriously depressed economies.

RETURNING HOME
And in that misery, the mystery of the free markets, once again finds opportunity.

In a verbal stretch, the folks who define offshoring as sending work overseas now grapple with words like onshoring, nearshoring, and LCDs (Low Cost Domestic sourcing) to describe bringing work back into the United States.

As countries around the world begin to question each other’s currencies and indebtedness – especially the currency and indebtedness of the United States – little attitude adjustments here and there put international supply lines increasingly at risk. The anti-trade posture of the current administration makes U.S. companies more vulnerable to political reprisal in the world markets, adding another justification for multinationals to move production back inside our borders.

WIDESPREAD EXAMPLES
In the IT industry, famous for pushing work out to low wage regions of the world, the convenience and security of putting facilities in rural areas of the U.S. is now becoming desirable. This article from NetWorkWorld considers the case made by the Information Technology Association of America in its new report Study: Could Onshoring Become The New Offshoring?

Legal work, of all things, might reasonably need to stay within our borders. I was thinking that was obvious, but then, I’m not a lawyer. Legal Onshoring Gains Momentum says that even lawyers are figuring out the benefits.

The real indicator for all this is manufacturing. What’s the attitude of big companies that make real things that you can touch? Answer: They’re sick of flying all over the world, hoping to get the parts right, in order to ship them back to the other side of the world and mesh them into a Just In Time assembly operation, only to find out they’re defective. It’s just not fun anymore.

In The Wall Street Journal’s excellent article Caterpillar Joins Onshoring Trend, Kris Maher and Bob Tita detail a number of major players who may move their production operations back into the U.S.

ONSHORING – AN OPTION OR A REALITY?
We knew this trend, ultimately, was inevitable. As the Chinese nation leapfrogs into modern technology, hundreds of millions of peasants become consumers. And then they become better paid consumers. Until, eventually, this low cost provider is low cost no more.

What caught me by surprise was the combined effect of the increasing wealth in China, coupled with our lowered standard of living here. As the United States deliberately debases its currency, we not only become a low cost supplier; but we can’t even afford to take our work elsewhere. For starters, we can’t afford the shipping anymore.

The trend has only begun.

CONTRACT MANUFACTURING PURCHASING FAIR
As an early sign of how serious this movement has become, turn your attention to Irvine, California on May 12. On that date, the National Tooling and Manufacturing Association is joining with the Precision Metalforming Association to sponsor the Contract Manufacturing Purchasing Fair – Bringing Jobs Back to the U.S., as they say.

I’m a little uncomfortable at their enthusiasm for encouraging desperate companies to cut their labor costs by another third or more. But I do understand it.

I consider this event to be an interesting milestone. The NTMA and PMA insist this is a bona fide opportunity for purchasers to lower their costs and strengthen their supply chains. And they bill it as a way to bring jobs back to the U.S.A., helping our economy to recover.

I’m suspicious, just now, that the jobs may not be all that desirable, and the work might not be profitable. In these early stages, let’s just say that the markets will sort that out.

If this fair gets traction, then I’m going to consider “onshoring,” or whatever it will be called, to have graduated from being a strong idea into a real life trend.

RECRUITER’S VIEW
Faster than I had imagined, free trade will offer, once again, to bring prosperity where it is invited. Left alone, this self-adjusting phenomenon may well generate more recovery than all our government programs combined.

Why it has to be called “onshoring” is beyond me.  We could as easily call it “doing business the way we always used to.”

Nevertheless, if the Contract Manufacturing Purchasing Fair is successful, I will look for U.S. unemployment figures to begin falling over the last half of 2010.

Posted in Business Climate, Economy, Employment Scene.


2 Responses

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  1. Harry Moser says

    Hi,
    The Irvine Purchasing Fair went well with 64% of OEMs bringing offshored work to be re-shored. More info available at harry.moser@comcast.net.
    I noticed the paragraph re cutting wages by one third in the section re the Fairs. We did not advocate anything like that.
    Regards

  2. Ted Dieck says

    Harry, thanks for writing. I’ve looked at some of your work. Very impressive. Please stay in touch, so we can support your efforts.



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