On The Economist's Special Report on Reshoring

The Special Report in the January 19, 2013 issue of the Economist, focuses on the increasing trend of "reshoring," bringing back manufacturing and some services jobs that were once "offshored" to foreign countries.  There are several reasons for this. 

Costs

Wages in China and India have been rising 10-20% a year for decades, and, while still much cheaper than developed world rates, are doubling as quickly as every five years.  When the cost of overseas shipping is included, the difference between developed and developing world costs narrows further.  Though rarely noted in the media, more jobs are lost due to automation than from offshoring, and labor's component of overall costs has continued to fall.  Manpower urges companies not to offshore at all if labor consists of 15% or less of a product's overall cost.

Risk

Shipping often takes weeks, and global supply chains expose companies to political, currency, climate, intellectual property and many other risks.  Boeing, for example, suffered badly by outsourcing too much of its supply chain, and Samsung used the knowledge it gained manufacturing for clients and became a competitor, and a triumphant one.

Customers

Much of the motivation is simply to be close to end markets, where it's easier to respond quickly to the tastes and demands of local customers.  In addition, offshoring enrages many citizens who are also potential customers, and reshoring can make for good public relations. 

Innovation

Interestingly, one justification for bringing production "home" is to increase innovation by having manufacturing and research and development (and, though the Economist failed to emphasize it, design, data analytics, marketing and customer service) housed in the same location, a move towards the "end-to-end" production that Steve Jobs advocated.  (Ironically, Apple has outsourced much of its manufacturing to Foxconn, with a number of high-profile consequences).  It's more difficult, on second thought, to draw a distinction between "core" functions, and superfluous ones.

Herd Behavior

And, to the Economist's credit, it points out that some of the frenzy for offshoring was caused by "herd" behavior in the first place. Very simply: some companies did it merely because other companies were doing it.  One quality that Warren Buffett looks for in managers is independence, to avoid lemming-like behavior.

Conclusion

In the end, reshoring likely won't happen in revolutionary numbers, but gains in manufacturing may offset most of the losses in services, and a significant drag on developed-world workers will be lifted.

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A Summary of "Air Conditioning: No Sweat" by the Economist

A fascinating article recently appearing in the Economist discusses the wide-ranging effects of air conditioning on society.  Economically, it has long been known that cooler air leads to sharp increases in productivity.  Indeed, one study showed that workers in the coolest parts of the world are 12 times more productive than their counterparts in the hottest parts of the world.  Despite the fact that relatively few people work in temperatures at either extreme, and despite the fact that air conditioning has spread widely even in poor, hot countries, further penetration into those same, often heavily populated countries, is sure to lead to further increases in productivity and wealth.

Cooled interiors have had an impact in on politics, too.  One academic argues that the ability of retired Americans to migrate to the warm, southern states is part of the reason that the Republicans were able to claim what had long been a Democratic stronghold, and now forms the geographic base of the GOP.

To read about air conditioning's effect on human health, the environment, architectural design and much else, the article can be found here.

 

Disclaimer: The host of this blog shall not be held responsible or liable for, and indeed expressly disclaims any responsibility or liability for any losses, financial or otherwise, or damages of any nature whatsoever, that may result from or relate to the use of this blog. This disclaimer applies to all material that is posted or published anywhere on this blog.