Out-sourcing – Does it Still Make Sense? — 6 Alarming Issues

Many outsourcing decisions have not been revisited since they were implemented 10-15 years ago. Nobody likes to hear bad news, but some of these decisions were wrong from the get-go.

According to our friends at the Alliance for American Manufacturing, over 50% of outsourcing decisions need to be relooked at in terms of short and long term feasibility. Now is an especially appropriate time for companies to take a fresh look at their current strategies and policies and be sure they understand the true costs of outsourcing, and perhaps start leading the charge for re-shoring manufacturing to their home bases. Some of the initial decisions are still no-brainers; for many other scenarios, an objective analysis of all the facts will identify significant benefits from an improved sourcing and fulfillment strategy.

While the issues of fair trade, intellectual property & patent protection, and resource depletion span the globe, five to ten years ago I would not have believed most of what appears in the news stories in just the last two years. Several books and documentaries have been made regarding the impacts of certain bad actors, so if you are “in the dark” on these issues, see the credits at the end of this article. And let’s be very clear on one thing; all countries have a couple bad actors that ruin the reputation for the rest of us, and this can be a call to act forthrightly, and transparently.

Looking globally, the decision of whether to locate over-seas or in-state, is heavily impacted by at least these five factors:

1) Certain countries operate “no-holds barred”

From protectionism to cyber attacks to espionage to currency manipulations, trade tariffs, quotas and anything else that will provide a competitive advantage, the governments of some countries turn a blind eye, or covertly move against foreign businesses on their soil. Would your assets (physical plant, machinery, people, capital, IP) be satisfactorily secure in a country that is actively unfairly trading with its trading partners?

2) Cyber-terrorism / theft is a global issue

Nearly every country has virtual groups that may be attempting to steal military and industrial secrets. Countries may also have groups of “patriots” or individuals waging their own cyber-campaigns.

The point being, locating your company off-shore may multiply the risk of cyber-infiltration, and the removal of proprietary data as foreign cable, telephone and satellite companies, may not be neutral parties.

3) Lack of Legal Recourse

Once stolen, the company’s IP / patents are not only unlikely too be recovered, but legal due process, fair trial, and prosecution is non-existent. “On-going” litigation between Fortune 500 companies and suspected cyber criminals in China, as just one example, has resulted in no movement by that government to resolve the accusations.

4) Loss of Market

The time to market for stolen IP / product is much quicker than the months / years of R&D it took to get to the point of producing the original product. As such, the amount of time your product is “the only solution” just got cut by half, or perhaps even more.

5) Second-hand smoke

The US has some of the most stringent environmental regulations in the world and the results benefit the general populace in terms of breathable air and clean water. Ten of the world’s 20 most-polluted cities are located in India, and while China is addressing their air pollution issues, only 3 out 74 cities met the new air quality standards. Not installing air and water treatment technology adds to the price gap when compared to countries that have laws in place for a cleaner environment. Do you really want to support the economic growth of countries that drag their feet on cleaning up their own environment at the expense of their citizens?

6) Loss of Control

Since many low-cost labor countries fail to protect their workers safety, health and the health of their general populations, you cannot expect them to make special exception to the products they will produce and ship to you. Red lipstick with lead in it, pet-food with rat poison, children’s toys with mercury in them are just a few of the news-making products made in other countries and brought into the US. Aside from the obvious risk to vulnerable US populations, there was direct financial and corporate liability for the companies involved.

This discussion isn’t really about in which country is it better, cleaner or more appropriate to operate a factory. The discussion is really about developing regional economies. Then everyone gets the products they want, without another country bearing the burden of its creation.

Source: “Death by China”, by Peter Navarro, 2013; or watch the documentary narrated by Martin Sheen http://deathbychina.com.

Have you heard of any recent on-shoring stories?

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