Friday, January 25, 2013

Outsourcing and Offshoring

I was very much looking forward to the Economist's Special Report on Outsourcing and Offshoring. I set aside some time this morning to go through it, and after having done so, I didn't learn much, although my interest in the topic is undiminished. Some points to consider:

  • Companies are building manufacturing facilities abroad to serve emerging markets better, not just to reduce costs;
  • Rising labour costs abroad have eroded much of the cost advantage (Average pay for Mexican manufacturing workers is now only slightly higher than for Chinese ones.);
  • Data suggests that offshoring has other disadvantages, which were not factored into initial cost estimates. For example, separating R&D from manufacturing slows innovation;
  • When manufacturing returns to the US, automation limits the number of jobs that come with it, but there is concomitant work in the supply chain;
  • The overall gains of outsourcing services have been offset by increased customer dissatisfaction and diminished quality;
  • China gets most of the manufacturing work, India the services;
  • Offshore companies are building capacity in the United States to better serve their customers (Lenovo has just opened a big facility in Research Triangle, and Tata Consulting Services is providing back office support to Harley Davidson from an office in Wisconsin.).

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