Is Outsourcing Dying Out?
Outsourcing has been a key feature of many businesses for years. However, has it had its day? Concerns about safety, cost and efficiency mean that many businesses are moving as much production as possible in house. This trend has become known as ‘reshoring’ and has drawn a lot of attention in recent months.
In a recent US study, 33.6% of businesses said that they were considering bringing manufacturing back to the States, whilst 15.3% were definitely doing so. These results were evenly distributed across sector and company size. According to Quality Digest…
“…many of the US companies that followed the trend to outsource manufacturing operations during the last decade to benefit from Asia’s low cost labour are coming back.”
The trend was further illustrated by a survey in The Economist, whereby 54% of respondents voted for the motion that companies should be investing more energy in creating American jobs, rather than taking valuable business components elsewhere.
The reasons for this change are manifold, however most companies cited rising labour costs in developing countries as a key reason for returning to home soil. As domestic wages stagnate, or even drop, wages in Asia and China have continued to rise exponentially. On a political level, the American government has been making reshoring an increasingly attractive prospect in order to boost its ailing economy and declining manufacturing industries. Many believe that offshoring has helped to contribute to America’s budget deficit and growing unemployment: by taking a large part of a key industry overseas, it could be argued that America was left vulnerable to economic fluctuations. High profile companies such as Apple, Google, Lenovo and General Electric have already made a partial transition back to domestic manufacturing.
Another key issue affecting offshoring is the logistical nightmare of trying to maintain quality and efficiency over vast distances. Bangladesh has some of the lowest wages in the world however it also has a safety record that concerns human rights activists. There is increasing consumer pressure on firms to withdraw from countries with lax safety records and a firm involved in a safety incident risks being labelled as culpable. After a fire in a factory in Bangladesh killed over 1,000 people, brands such as H&M and Gap have being lobbied to improve safety measures in the factories they use. Pressure towards Bangladesh has also come from the US Government; recently the US trade representative has warned Bangladesh that Washington may withdraw, suspend or limit the country’s trading privileges due to serious concerns about the country’s worker safety and freedom of association. Unfortunately, for many businesses the cheap costs that made countries such as Bangladesh attractive are more than outweighed by the possibility of PR damage and the costs of ensuring that safety procedures are being conformed to.
The trend is primarily in the US, however a number of UK companies have also reshored their production. Food manufacturer Symington’s recently moved its noodle making operation from China to Yorkshire after discovering that production costs were roughly the same in both places, compared to 35% cheaper in China in the past. Henrik Pade, the business development manager at Symington’s summed the situation up “Everybody prefers to do manufacturing on their own doorstep rather than far away, which means you need to have a financial incentive to outsource”. Topshop and River Island have also showed some inclination to resourcing, having begun purchasing an increasing amount of materials from domestic suppliers.
Do you outsource and are considering your options? Or do you simply think that companies have a responsibility to create local jobs? Join the conversation by tweeting us @is4profit.
This article was written by Robert Fenn at the British Assessment Bureau, specialists in improving quality with ISO standards.