At the time of this writing, the Flow Control LinkedIn Group features a discussion on the recent trend toward re-shoring in the U.S. manufacturing segment. In this forum, one of our group members commented: “It’s very interesting that it has taken this long for employees overseas to demand better arrangements. The only problem is that some companies will still produce offshore as long as there are workers willing to [work] for less than $1/hr. They will just move production to smaller areas, such as Vietnam, etc. But I hope we realize that production here means more than just jobs. It is easier to control production issues if they are within easy travel range. Other than that, it is up to the overseas management to keep this in control and can take longer to manage this way.”
The above comment hints at the complexity companies face when considering the decision on whether or not to offshore/re-shore. That is, there are factors to be evaluated beyond the cost of labor, such as cost of relocation, cost of management, costs of manufacturing, reputation costs, and, I dare say, moral costs.
A recent article in The New York Times examined why Apple moved its manufacturing to China in the early 2000s and why it will likely continue to manufacture in China for the foreseeable future.* According to the article, there are issues beyond the mere cost of labor that make China a better fit for Apple’s manufacturing operation than the U.S. could ever be. For example, as an electronics manufacturer, the wide majority of Apple’s supply chain is, at this point, located in China and/or in the surrounding Southeast Asia region. If Apple were to move manufacturing back to the U.S., it would have to import the parts it needs to make its products. Still, the availability of cheap and abundant labor is also a draw.
Discussing Apple’s manufacturing operation at Foxconn City in Henan Province, China, the Times reports, “The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s workforce lives in company barracks and many workers earn less than $17 a day.” For Apple, the size and flexibility of the available workforce in China enables it to meet the needs of peak periods of demand in a way that it just couldn’t in the U.S.
However, while the scope and characteristics of Apple’s manufacturing process make it a good fit for China, there is a growing number of U.S. companies who are re-shoring. According to a survey of North American manufacturers and suppliers by MFGWatch.com, there was a 3 percent uptick in re-shoring back to North America (up to 22 percent) in the last quarter of 2011, with manufacturers researching re-shoring during this same period increasing by 7 percent to 33 percent.
Ultimately, the cost-benefit of whether to offshore/re-shore will depend on a variety of factors. The answer to the question of whether those who are re-shoring should have ever offshored in the first place can only be found by considering the range of costs involved and weighing those against the benefits gained. However, the “moral cost” is a difficult one to gauge. Does a U.S. company like Apple, for example, have an obligation to institute a standard level of worker rights based on the norms of its home nation, particularly when the products this company is selling are marketed to a decidedly Westernized way of life?
In the world of business and industry where the focus is so strongly on debits and credits, there is often reluctance to consider a concept as vague and touchy-feely as the “moral cost,” but certainly there is morality in business … isn’t there?
– Matt Migliore, Executive Director of Content
* The New York Times, January 22, 2012, A1, flwctrl.com/xPygIz.