We may not all have to learn to speak Chinese after all.
Many small businesses are now discovering that offshoring their manufacturing is becoming more costly than producing their products in North America. Businesses have, until recently, enjoyed the benefits of offshoring but a number of factors have now pushed the cost of manufacturing overseas to new levels:
- Large wage increases
- Increasing cost of shipping
- Increased lead times
- Poor, unreliable, quality
In recent years the low cost of labour made up for the cost of shipping, increased lead times and unreliable quality to an extent. With wages on the rise, however, and these other negative factors not decreasing, it seems as if many companies are realizing that it just makes more sense to manufacture at home.
Many companies will continue to seek cheap labour and manufacturing in developing countries but even some big players like GE see the benefits of staying close to home. GE has recently decided to open new plants in the U.S. as opposed to China. GE understands the benefits of keeping the supply chain tight-knit and believes that innovation will win-out over cost in the long-run.
Although the article speaks to U.S. trends, I believe the same idea holds true for Canada in that can expect a turnaround in the popularity of offshoring. Perhaps the western economy will thrive once more, over time, and we can look forward to more stable economy.
Maybe I can still get a refund on those Mandarin lessons
What the article fails to touch upon, however, is the other overseas threat: India.
Manufacturing industries may slowly climb out of their grave and add to the economy but this is not likely the case for service industries in the short term. Dial a typical ‘1-800’ number and you’ll be immediately sent overseas. It is important that western firms focus on innovation that can reduce the cost of both service and manufacturing while also maintaining an acceptable level of support (replacing all tech support employees with machines would be a bad move indeed!)
Poor quality in these offshore service areas may already lead to a decrease in popularity for outsourcing services. Consumers are forever frustrated by speaking with those who seem incompetent (poor product knowledge) or cannot speak their language clearly. Perhaps western firms will realize the benefit of proper customer service much like the manufacturers have already begun to realize the importance of quality and reliability.
What the article does, more than anything else, is bring hope to Western and other developed countries around the world. Perhaps we can still hold onto our economies for a little while longer.
What are your predictions?