Here is a great article courtesy of The Ecomonist, January 19, 2013. It’s all good news.
“IDEALLY”, said Jack Welch in 1998, when he was chief executive of General Electric, “you’d have every plant you own on a barge to move with currencies and changes in the economy.” Reality followed vision for Mr Welch, who was a pioneer of offshoring, setting up one of the first offshore service centres in Gurgaon on the outskirts of Delhi.
GE’s line has now reversed. Jeff Immelt, Mr Welch’s successor, calls outsourcing “yesterday’s model”. He has returned production of fridges, washing machines and heaters from China back to Kentucky. Having shipped much of its IT work outside America, the conglomerate is now shifting it back and taking on hundreds of IT engineers at a new centre in Michigan. And GE is not alone. As our special report this week explains, bringing jobs back to the rich world is as much in vogue these days as sending them to China was a decade ago…
Now the pull of low-wage countries is weakening. In a survey of big American manufacturers by the Boston Consulting Group last spring, nearly two-fifths of firms said they were either planning to move or thinking about moving production facilities from China back home. Next month America will start making mass-market personal computers again when Lenovo, a Chinese giant, relaunches production of IBM ThinkPad notebooks and desktop PCs in North Carolina. Foxconn, a Taiwanese firm which makes a large share of the world’s electronic gadgets, now says it will expand in America. General Motors plans to shift almost all its IT (much of which had also gone to India) back home to Detroit. These days the main reason why companies want to expand their presence overseas is to be close to consumers in fast-growing new markets, not to exploit low wages as part of an offshoring strategy.
The political mood may have influenced decisions to bring jobs back, but the fundamental drivers are economic. First, manufacturing is becoming more automated, so labour makes up a decreasing proportion of costs. Second, for businesses that continue to rely on armies of people, labour costs have soared in formerly poor countries. Wages for Chinese manufacturing workers are going up by around 20% a year, faster than their productivity is growing. A stronger Chinese currency has added to the upward pressure on costs…
Offshoring in services is, to be sure, still going strong overall. But early pioneers of services offshoring are bringing work back home, having discovered that looking after customers and developing new IT tools are in fact a “core” part of business. For many firms, sending call centres overseas has turned into a nightmare. “We just can’t get the accents right,” confesses one Indian outsourcing executive. As with manufacturing, the advantages of outsourcing services are falling. For an American firm, the gap between the cost of employing an Indian software programmer and the cost of a local one will fall to under 20% by 2015, predicts Offshore Insights, a Pune-based advisory firm. All this could add up to the “Death of Outsourcing”, says a paper by KPMG, whose consultants have long advised Western firms on sending work overseas.
Great to see these important jobs come back home…it’s about time.
Ken Lazar, Founder