Another Day, Another Outsourcing Realization

By Kevin Meyer

It's almost becoming routine, if not boring.  Nearly every day there is news of companies realizing the follies of outsourcing and deciding to "reshore" or "onsource."  Not a bad thing and we enjoy reporting on it, but we must also keep the proper perspective.

The latest comes from an article in Manufacturing News titled Multinational CEOs Say Outsourcing Has Gone Too Far.

The CEOs are nervous about what this means for their children and grandchildren if the United States can't get back into the global manufacturing game. They recognize that outsourcing of manufacturing has not worked in the way they had envisioned. "We overestimated the issues associated with outsourcing jobs to low-cost nations and the consequences of that," says Giffi. "The executives underestimated the erosion that would have in their overall capabilities in places like the United States and how that would fundamentally shift their supply chains."

They also now recognize the folly of chasing low wages. "I don't think when the whole process started there was a fully baked understanding of the fact that this is pretty elusive," says Giffi. "It's like chasing drops of mercury around the table. It's very hard to contain once you start playing that game."

Like chasing mercury – what a great visual, and very true.  Glad to see these guys starting to realize the folly of their ways.  So they are realizing the problems, but who's at fault?

Companies can locate factories with the most advanced production technologies anywhere in the world. The significant factors that influence where those investments are made have been influenced by a nation's economic policies. In the United States, those policies have been focused on the financial sector and services at the exclusion of manufacturing.

"There is a completely different and more basic understanding now that says innovation is tightly tied to your ability to manufacture. Creating, researching, developing new products and making them is fundamental to the stability of an economy."

But the United States government can't dither in putting together policies that favor production over consumption. "This isn't something that can be debated indefinitely," says Giffi. "Business leaders are forced into a world of making decisions 24 hours a day seven days a week on where they have to make investments in plants, equipment and new jobs." If the United States does not address its cost structure, talent gaps, trade polices and infrastructure "then we will see a continual gradual deterioration and downward spiral. . ."

That's partially true.  The U.S. does have some of the highest corporate tax rates and is one of the only countries that tries to go after foreign-created income, largest regulatory burdens, and especially in California some bizarre work rules.

But at the same time there are companies, in every industry, that do compete globally from the U.S..  Right now and for the past several years.  It takes a lot of hard work and an ability to look beyond the blinders of traditional accounting, but by focusing on reducing complexity and adding value, and realizing that there's a valuable brain attached to the supposedly costly pair of hands, companies can succeed now.

Economic policies make the job far harder, but not impossible.  Those companies that want to return to the U.S. can become globally competitive now, if they really want to.