Saving Jobs by Sending Jobs Offshore

It is my contention that “Sending Jobs Offshore Saves Jobs”; or put another way, “Saving Jobs by Sending Jobs Offshore. The phrase “Sending Jobs Offshore” during an election is about as divisive as the abortion topic. The idea that sending jobs offshore can save jobs in the United States goes against all reasoning, so how can this be? If you are a union member, a factory worker, an admin person, or a manager in the United States this article is meant for you.

There was a very effective negative TV commercial that ran during the California Senate race between Barbara Boxer and Carly Fiorina. The commercial mentioned the supposed 30,000 jobs that Fiorina sent offshore while the CEO was at Hewlett Packard from 1999-2005. What the commercial did not mention was that when Fiorina did this the economy was experiencing the dot.com and technology bust during the 2000 recession. Not to mention there was 911 that also set the economy back. As of October 2009 Hewlett Packard employees totaled over 304,000; a 30,000 person layoff would have been around 10%; sounds reasonable. What the article did not mention, was the fact that she also cut 3,000 management potions.

A CASE FOR SAVING JOBS BY SENDING JOBS OFFSHORE: Why have companies made the painful decision to take their production offshore? As hard as it is to believe, sending United States production to another country to lower the “Cost of Goods” is nothing new. The 1960’s brought us an explosion of Made in Japan products. Back in the 1960’s, still a short time after WWII, “Made in Japan”, came with a negative connotation. The Aerospace industry was sending component parts to Mexico for assembly in the 1970’s. The mid 1980’s changed Wal-Mart’s “Made in America” slogan forever. Wal-Mart’s economies of scale and distribution made too much sense for Wal-Mart to become 10% of China’s GDP. The 1990’s brought us the “North American Free Trade Agreement”. It is obvious that American Industry has always been about reducing material costs and searching out a cheap source of labor.

Business has always been about operational efficiencies. Unfortunately, process efficiency, such as the wave soldering machine and the auto insertion machine eliminated hundreds of thousands, if not millions of jobs. These two machines eliminated the career soldering person in the electronics industry. These two machines are a perfect example of how the American factory workers have been replaced by efficiency. The impact that these innovations continue to have in the electronics industry is priceless. It is not an issue of going offshore; it’s good management.

Using the Case Study No: 1 as an example we can see how a Toronto based speaker company could not be competitive using their own resources. Although they were vertically integrated, the cost advantage could not compete with the low cost of the Asian labor-rate. Their Labor-Rate could not be competitive, even with their manufacturing advantage. Their domestic labor force kept them out of the marketplace. Combined, vertical integration and an expensive work force created a situation that made their products too expensive for the marketplace, thus losing sales. The Toronto based speaker company knew that they needed to go offshore and have their product made “Turn-Key”, (completely finished), to compete in a market with tough margins.

The jobs that are saved by sending a product offshore are the following:

• Engineering – These positions are maintained when jobs are sent offshore because it would not be wise to trust your engineering to another firm. The liability vs risk would not pose few advantages. Companies are marketing, “Engineered in the USA”. Radio Shack labels their products, “Assembled in the United States with Foreign & Domestic Parts”. They also label their product with the country of origin for product that is 100% made and assembled offshore.

• Industrial Designers – These positions MUST stay in the United States because our domestic market does not accept designs out of Asia. The US design will always win over the Asian design. Simply put, domestic designers have a better feel for US trends than an industrial designer at the factory somewhere offshore.

• Sales & Marketing – These positions are kept alive by having products that are competitive in the marketplace

• Shipping and Receiving – For the obvious reason, these positions are kept because product is flowing from the factory to the warehouse and back out to the retailers.

• Order Entry, Customer Service, and Accounting Departments – These departments are kept busy with their usual flow of paperwork. However, without competitive pricing for their products these departments could experience layoffs.

There is a Win-Win scenario for sending a product offshore that works for everyone:

• Keep the high profit margin products in the United States. Although the profit margin will be higher, the volume will be lower, it’s just a fact.

o Transition the high volume low margin product offshore. This keeps our domestic labor force producing the high margin items.

o The level of domestic factory workers can be adjusted as time & volume prevails.

• Product development has always been an issue of resources, engineering resources, factory resources, high tech equipment availability, quality assurance facilities etc. Taking a product offshore can be a logistical solution. Depending on the size of your company will more than likely determine the availability of such resources? However, taking your product offshore gives you an instant availability to resources you did not have at home.

o The quality of your product can actually improve. The factories that you would choose to manufacture your product will more than actually be an ISO9000 factory. There will be built in procedures that will not allow your product to go off track and be a loser.

o Because you will have specified the “Quality Assurance” procedures for the factory’s outgoing inspection. If the incoming inspection team on the domestic side finds the product to be outside the agreed up QA standards the whole lot is rejected. Now that is Risk Management at its finest.

• Business has always been about operational efficiency. Process efficiencies, such as using a wave soldering machine, an auto insertion machine, or robots

o These efficiencies will only allow the US industry an increased labor rate, to a certain point. The construction industry reduces its labor costs by fabricating product in the shop and bringing it out to the construction site to be erected at a higher labor rate. However, we finally have reached a point where the technology and higher labor rate are impacting the cost and moving production, or a portion of production offshore becomes a necessary component of the modern business model

The Hurt Feelings in the USA! Sending jobs offshore! It has become more of a political hot topic than an actuality. For over half a century now the United States has been importing products in from other countries. After WWII we were importing cheap goods from Japan. Since then we have imported goods from Korea, Taiwan, Mexico, Philippines, Malaysia, Vietnam, Singapore, just to name a few. The question is: What 3rd world country will the United States set up shop at?

It has always been our way, (those of us building product outside our borders), to pull out and move to another country once we raise the local standard of living and the labor costs increase too much. Time and time again offshore manufacturing has picked up and relocated to countries with an alternate labor source. We tend to pull out and exploit various 3rd world countries. It is not just the Americans who do this, after all, we are a Global Economy.

At the heart of the matter is that we all have compassionate hearts and hate the idea that someone may suffer if they lose their job. However, the shareholders are the ones whose best interest must be of the utmost concern. If there is equipment that can increase efficiencies then it is everyone’s responsibility to bring the suggestion to management.

Making sure that the company is kept competitive in the marketplace should be job one!

CASE STUDY No 1: The speaker industry in North America was, at one time, an industry employing thousands of employees. From factory workers to the accompanying support staff, the audio industry was an American industry. It still is, but it is different than it used to be. The “After Car” audio market, for the longest time, had to bear the label, “Made in USA”. Once Wal-Mart made the move to purchase goods offshore with intent to hit certain price points, “Made in USA” was not important anymore.

This mindset is the reason why the speaker industry in the United States. The Audio Industry was forced to go offshore to hit a price point. The reasoning was to stay in business by outsourcing the product instead of losing sales because price points could not be met. There are no longer speaker cabinet manufacturers in the United States or in Canada. The last of the speaker cabinet manufacturers in Canada, Audio Products International, put their manufacturing line in “moth balls” around 2005. They are now buying their speaker enclosures out of China as a Turn-Key product. The problem that they encountered was that the costs to make the speaker enclosures in-house were pricing them out of the market and they could no longer compete.

CASE STUDY No 2: The electronic industry is not what it once was. As a young boy in the early 1960’s I remember picking my mom up from work with my Dad. What I remember were all the women, in one warehouse sized room, that would solder all day long. The company my mom worked for was Teledyne.

Those jobs went by the wayside with the advent of the Wave Solder machine. The wave, (flow), solder machine is a bath of molten solder. The printed circuit board then rides along a trolley allowing the electronic components to be dipped in this bath of molten solder; automatically being soldered. The resulting quality is better and the use of the Wave Solder machine reduced by labor by least 80%.

The Auto-Insertion machine was the next process efficiency that would change the face of electronics forever. An average Auto-Insertion machine will stuff 25,000 electrical components in an eight hour shift. The difference between a factory worker stuffing the printed circuit board, (pcb), and the Auto-Insertion machine is exponential. Hundreds of thousands of jobs were replaced with the development of the Auto-Insertion machine.

The design and use of the Wave Solder and Auto-Insertion machines were not intended to put over a million soldering positions out of jobs, but to reduce labor by creating efficiency. However, the decisions to use these machines were driven by the assumption that not using them would place them behind the competition, which certainly would be using them. The fear of not being competitive was a driving force. It was not about saving the soldering positions; it was about staying competitive in their industry. Management has always been about efficiency and making the best return on the shareholder’s investment.