Ahh… to be a world tourist. Globetrotting from country to country in search of lower direct labor costs to help offset unrecognized internal process waste cost. The first stop was Mexico, then on to Honduras or the Dominican Republic. After a while there were too many gringos there as well, so how about a nice cruise over to Asia.
China’s pretty nice… lots of cheap labor… that should do just fine for a while.
Uh oh. It’s only been a few years but something’s going wrong. Why are labor costs shooting up? It’s not tracked, but it appears training costs are going through the roof as well. What’s going on?
Feels like a retention melt down.
… more than half (54 per cent) have experienced an increase in turnover for professional staff since last year
… the average tenure for 25-35 year olds – the age group targeted most by multinational companies – fell from an average of between three and five years in 2004 to just one to two years in 2005.
… despite these burgeoning retention problems, organisations are still underestimating the true costs of having to replace staff.
… taking account of all the elements that contribute to turnover cost, like recruitment agency fees, interviewing time, and loss of sales while positions remain unfilled, employers can face bills of over 200 per cent of salary for senior staff.
Time to start looking for the next destination. Africa is looking pretty good. It’s going to cost a lot to move the factory over there. But surely the reduced labor cost offsets moving, retraining, putting more inventory on ships, and rejiggling the supply chain.
Africa’s pretty nice… lots of cheap labor… that should do just fine for a while.
Mark Edmondson says
Kevin,
You have a wry and profound way of expressing a major issue. I seem to be running across as many “China off-shoring” consultants today as I do lean consultants.
I know of a very few companies that source their manufacturing location based on strategic issues like customer location and responsiveness. But alas, most still follow the holy grail of minimizing direct labor rates, without understanding the impact to the rest of the business.
Kevin says
You’re right… which is what prompted me to write that post. I was just asked to be part of a panel discussion on outsourcing at a central coast business conference. When I looked at who the other panel members were, it became pretty obvious what the slant was. We’ll see what “balance” I add.
Kevin