The chart in this post really tells the story, doesn't it? It's interesting to see how the cost differential has diminished in the past decade, and how outsourcing is no longer the Perfect Answer it once seemed to be (for everyone but the displaced workers).
Re: interesting chart
Tenacious
9/9/2011 11:34:39 AM
The chart is eye opening, and so are the comments about quality. But think about it. How much do workers slack when the bosses are away? Imagine how easy that is to do when they are continents away. Multinational firms have staff on site, but small manufacturers don't have incountry oversight. So they don't gain the advantages ... just added (lack of) quality problems.
Re: interesting chart
cat tail
9/9/2011 11:37:09 AM
Whether it's true or not, I still feel like American made offers better quality (in most cases). And from reading this post, it appears many Asian consumers think the same.
Low cost states
driven
9/9/2011 11:43:37 AM
The potential for cost reduction alone is no longer enough to justify moving operations.
I know the next debate will be about factories in states without workers rights, but I feel even those workers will have greater rights than many of the factory workers now in places like China or smaller, developing countries.
Re: interesting chart
mInvestor
9/9/2011 3:19:03 PM
Sherri,
It's indeed an eye-openning chart. Thank you. But I have several questions about this chart:
1. How was the productivity calculated? The productivity in US reaches 100%?
2. The labor cost saving in 2000 is 65%, but the total cost saving is 16%, where did all those 49% go? 49% went to transportation and duties? That's a pretty heavy duty, or un-effecive transportation.
3. The labor cost in China is expected to increase 26% from 2000 to 2015, but our companies in US will only feel 6% difference. I'd say Chinese manufacturers managed (or will manage) this change quite well (think of all those union requests to increase salary and benefits happened here).
4. If the labor cost is getting high, I think some companies will move manufacturing to other developing countries. I've seen lots of clothing and shoes made in Vietnam and Malasia recently. Do you have any data on those developing countries?
5. Also, I noticed some companies are moving manufacturing from coast part of China to inland, because the labor cost is much lower there. So what do you see from that change?
In your artical, you mentioned "Proponents of reshoring say policymakers could encourage renewed domestic production. US manufacturers already make about 75% of the products Americans consume,". 75% actually made in US, that's a very big number. What percentage does British have? Hwo about Japenese, and Chinese?
Thank you again for this great article, it has lots of info. Some of data are quite intrefuing.
Re: Low cost states
Phoenix
9/9/2011 3:21:55 PM
I agree that the rights of workers would most probably be better than China. But I'm worried that the US workers might not be as flexible as chinese or workers from other outsourced countries. Eg: Skilled workers might seek to do only the work they were trained to do, unwillingness to work overtime, demand for higher pay and benefits. Even unions with
better worker rights might mean more red tape for reshoring companies than they faced else where. Therefore they would need a good understanding of how to cope with the changed worker-employer dynamics.
Re: Low cost states
mInvestor
9/9/2011 4:21:26 PM
Phoenix,
You are right on this issue. This is one of biggest challenges we face for reshoring our manufacturing. We need cooperation, understanding, leadership and creative thinkings. Not a easy task.
You can get more detail about the chart in the Boston Consulting Group report: http://www.bcg.com/documents/file84471.pdf
Lots of details.
There is another big trend few investors notices: The working age population of China will reach its peak next year. China will see the shrinkage of worker supply. The higher wage is just the start of the trend. Shrinkage in worker supply can also mean the burst of real estate bubble, domestic consumer spending crash, etc.
The Chinese government does have huge hoard of cash reserve to handle these crisises. But it can be a repetition of what happened to Japan in late 80s.
@mInvestor -
1. In the example, productivity is measured as a fraction of US productivity. This is just how it's defined for comparison.
2. Labor is only one component of the cost of the product, so any change on labor cost will have a smaller % change on the overall product.
3. Same as 2. Since labor is 1/4 of the cost of the product, a 25% increase in labor causes a 6% increase in the product price.
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