Offshoring Costs Increasing? No Problem

“Time to Rethink Offshoring,” by Ajay Goel, demonstrates growing costs in China and their implications on U.S. supply chains.  American corporations shifted production of high tech goods to Asia over the last decade due to the appeal of rapidly growing local markets and lower wages to produce goods. Specifically, China and Malaysia became popular manufacturing locations of the offshoring trend.

Despite the initial low costs, Goel writes that supply chain costs in China have not been as advantageous as previously on account of the increasing oil prices since 2003. Moreover, the weak U.S. dollar in combination with increased Chinese labor costs force American manufacturers to question the optimization of producing their products in China.

As the profitability of offshore production in China decreases, Americans wonder why not all companies are racing to shift manufacturing to home, which would increase local jobs and assist the deteriorating economy. “How the U.S. Lost Out on iPhone Work,” by Charles Duhigg and Keith Bradsher, voices President Barak Obama’s difficulty with this dilemma. Almost a year ago, President Obama asked Steve Jobs why he would not return overseas production of Apple’s products back to America. Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back.” Jobs was aware of the increasing labor costs in China, where most of his products are manufactured, but had no plan to move the production to America.

Why do manufacturers continue to use offshore production as costs are increasing? Offshore management, after all, poses several hurdles including culture clashes, distance, and regulation uniformity. The key word is flexibility. Chinese manufacturers offer industrial practices that suit an optimal supply chain. For instance, Apple created an assembly line overhaul when they redesigned their iPhone screen weeks before its launch date. When the screens arrived at the Chinese factory, workers in the dormitory were awakened at midnight and began a 12-hour shift to ultimately produce over 10,000 units per day. Overseas engineers are also able to meet difficult requests, such as designing for optimization, faster than Americans.

While efficient supply chains such as Apple utilize China’s flexible work culture, I believe this is an ethical issue. Are American companies taking advantage of Chinese workers? Or are the helping them as they provide jobs? As American companies continue to use overseas production to assist their supply chains, should we accept that workers in developing countries will be exploited?

Source: http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?pagewanted=1&_r=0