By Kevin Meyer
Mark over at the Lean Blog tipped me off to an interesting article at Deloitte that debated the pros and cons of manufacturers repatriating jobs back to the United States. Probably the most interesting facet is that a major consultancy with a typically traditional mindset is actually debating the question as opposed to simply pushing the religion of outsourcing. In fact, the "pro" side of repatriation touches on points we've discussed here several times while the "con" side spouts forth the usual narrow-minded myopic arguments. Perhaps we deserve a prize for being ahead of those guys. Again.
Manufacturing jobs: To repatriate or not to repatriate, that is the question.
The gap in structural costs between U.S. and offshore manufacturing operations has shrunk significantly in recent years – down to 17.6 percent in 2008 from nearly 32 percent in 2006. Some say this trend creates new strategic options for facility and supply chain planning. Others argue that two of the structural drivers – energy costs and taxes – will make it impossible for U.S. manufacturing to regain competitive advantage. Which raises the question: Is it time to start bringing manufacturing jobs back to the U.S.?
Well, actually they never should have left in the first place and in if you did follow the lemmings then the best time to "start" was a couple years ago.
Most of the rest of the article is in a point / counterpoint format, so here are some highlights:
| Pro | Con |
| It’s not all about cost. Quality and intellectual property are big risks in offshore manufacturing. So are supply chain disruptions. Customers won’t wait 30 days for their orders to arrive from abroad. | You can cover a lot of risk with a 17 percent cost advantage. |
| Costs of labor in other countries are on the rise. Besides, it’s not all about labor. Innovation, productivity and automation play a big role in reducing the overall impact of talent costs. | The U.S. cost of talent dwarfs that of thriving offshore markets. That’s a big piece of the puzzle ... and it’s not changing anytime soon. |
| The cost and supply of U.S. talent offer significant advantages right now. First movers will benefit from an eager labor pool – and the good will of American consumers. | Sure there are a ton of unemployed people, but top talent is still hard to come by in the U.S.. Other countries have just as much talent to offer, if not more. And at a better price. |
The "con" side talks in terms of labor cost while the "pro" side understands that there is more to labor than simple cost. There's creative talent, and now's the time to lock up some of the great talent available on the market.
The article also discussed the issue with three Deloitte staff members. First, Dmitri Shiry:
One reason for the improvement is that other countries are experiencing increases in non-wage costs. Canada and the United Kingdom are seeing health care benefits go up as supplemental private insurance becomes more popular. Increasing tort claims are impacting other European countries, and China is being affected by rising pollution control requirements.
The U.S. tax rate is still among the highest overall corporate rate for industrialized countries. This is especially challenging because it has remained largely unchanged since 1986, while other countries have aggressively lowered their rates. High-tax environments may discourage capital investment.
Those comments are interesting from a variety of perspectives, especially since we've touched on how other countries seem to be moving away from government healthcare and high corporate taxes at the same time the U.S. is moving in that direction. Go figure.
Here's Tom Morrison on the talent side of things:
The crisis is not about the availability of workers for jobs that require technical skills. It is about a mismatch of the availability of these skills where manufacturers want them most. This skills shortage is exacerbated by an aging workforce and the increasingly global nature of business.
Innovative approaches to training, development, and retention can help improve the availability of workers with the right skills and the incentive to stay. Relative to many countries around the world, the U.S. and many states do not offer the types of training programs and incentives that can be found in other countries to assist in developing the right skills, exacerbating the shortage. Companies should consider investments and partnerships with local technical schools, community colleges and universities as a means of building talent pools and pipelines.
Completely agree. And Todd Izzo on tax policy:
Taxes can play an important role in encouraging companies to expand in the U.S. If the U.S. were to adopt tax policies that encouraged domestic investment in capital and labor, such actions could further reduce the structure gap in costs between U.S. firm and their foreign competitors.
Current policy debates in Washington are focused on raising taxes and reinforcing the current system rather than on new approaches to business taxation. This continuing debate over proposed patches to the current system means that businesses, both domestic and international, experience the U.S. tax code as inherently unstable and unreliable.
Congress has an opportunity in the next few years to strengthen U.S. manufacturing by convert the conversation about raising business taxes into a serious conversation about fundamentally reforming business tax rules to encourage investment in labor and capital.
Good luck with that. After just "achieving" a record deficit I bet the ability to focus long term instead of the traditional flawed knee jerk traditional "increase taxes to increase revenue" mentality will be virtually impossible.
But the good news is that job repatriation is occurring and accelerating. Perhaps as more and more companies recognize the value of shorter supply chains and in-house talent, real change will happen.