Most folks in the U.S. have never heard of Shanghai Automotive Industry Corporation (SAIC). They will. SAIC has a joint venture with General Motors and another with Volkswagen to build cars in China and other places in Southeast Asia. While it may have come as a surprise to the people running things at GM and Volkswagen, no one else will be particularly stunned to learn that SAIC has had an ulterior motive.
While GM may have thought SAIC was merely peddling cheap labor for the good of GM, it turns out that SAIC was learning a little bit about manufacturing cars in the process. SAIC now expects to sell 50,000 cars of its own design, with their own brand in 2007. I don’t imagine it will be too long until SAIC cars will be here, reaping the benefits of all of the intellectual capital GM gave away in their single minded pursuit of cheap labor.
Same thing happened a few years back when Schwinn outsourced its bicycles to Giant Corp. of Taiwan. Lo and behold, Giant learned all about bicycle making and became Schwinn’s leading competitor.
It would seem obvious that a company has to add value somewhere in order to make money. When GE succeeds in outsourcing all of its manufacturing and all of its engineering – which should be soon at the rate they are going – the question on the table will be, "Who needs GE?" A customer will be better off going directly to the third party design firm and the third party contract manufacturer and doing business with them. Why pay a middle man?; and a middle man or a glorified importer is all a company is that has outsourced its core value adding work.
Outsourcing – especially offshore outsourcing – may be a good idea for a commodity type component here and there, but when a company outsources its core value adding activities, it might as well close up shop and send everyone home. No matter how strong brand is, without value adding to back it up, it is a hollow shell. Better to end it all at once than to drag the employees and stockholders through a long, slow and painful, but inevitable, death.