Business Corner
STRATEGIES & ANALYSIS
BY PHIL PHILLIPS
CONTRIBUTING EDITOR
PHILLIPS@CHEMARKCONSULTING.NET
The new “offshoring” could be
the new “backshoring”
When will
outsourced
services and
manufacturing
flow back to
U.S. shores?
There has been and will continue to be
consternation within our industry
regarding services and manufacturing
being transferred to other countries, a trend
driven by less expensive labor and other supply chain advantages versus the U.S.
Some studies are now saying that this offshore out-flow phase may have turned the corner and end soon and return to our shores. The
term “Backshoring,” which describes this phenomenon, has been adopted by these sources.
However, much of the talk thus far is more
chatter than reality. Large U.S. computer and
service companies have reduced their offshore
service operations due to the backlash from
irate customers with no tolerance for problem-solvers located thousands of miles away whom
do not resolve their problems.
Some Asian service companies have even
relocated their operations from the Far East to
the U.S. as a result. Is this a major trend that
we will see in other services and manufacturing sectors?
Many circumstances need to be tossed up for
examination in an effort to answer this question. For example, when considering China’s
manufacturing history over the past 15 years,
it has been taking an increasing amount of
manufacturing from the U.S., making the
goods and returning the finished product to
the U.S. for sale.
Here’s one example of many. Let’s take a
look at wrought iron patio furniture to illustrate the paradigm. The situation is that
China has increasingly taken market share
from:
• the iron producer;
• the wrought iron furniture manufacturer;
• the cleaning chemical manufacturer; and lastly
• the powder coating formulator.
Needless to say, the four aforementioned
manufacturers are losing their business to
China in this scenario. Contributing to the
rationale that has supported this “offshoring”
trend has been:
• the non-floating Chinese currency;
• the non-floating Yuan;
• cheap labor costs which run at an average
range of between four and ten percent of labor
costs in the U.S.; and lastly
• a then strong U.S. dollar in combination with
favorable government supported shipping
rates.
“It is fair to say that provided these offshore tactices start to reverse themselves it will not be an overnight occurrence and it will not be logical to
assume that these applications will
return to the country of origin.”
These favorable combinations of advantages
make a compelling case for a wrought iron
powder-coated furniture set to be sold in the
U.S. at a 40-55% cost advantage over similar
products made and sold in the U.S. We’ve all
heard the story before.
It is also fair to say that provided these offshore tactics start to reverse themselves it will
not be an overnight occurrence and it will not be
logical to assume that these applications will
return to the country of origin. To this latter
point, the U.S. may have “offshored” the wrought
iron furniture example to China originally, but
