Right-shoring: Is it the best of offshoring and on-shoring?
[As seen in Smart Business Atlanta, May 2012]
Why do we believe offshoring is inherently bad? What makes a job “belong” in the U.S.? Both questions are based on the assumption that trade creates winners and losers. However, a job producing something overseas does not eliminate a job in the U.S. My experience has shown that a properly executed strategy can and should create winners on both sides.
A U.S. company that implements offshore manufacturing to complement its domestic operations affords competitiveness and room for growth. This, in turn, fuels an increase in R&D, sales and even domestic manufacturing. That means more U.S. jobs, not less.
Instead of the commonly used offshoring versus on-shoring idea, let’s replace it with “right-shoring,” and intelligently ask, “Where is the best place to make something?” My business answers this question for our customers every day. To do so, criteria beyond cost must be considered.
Global trade no new idea
The idea that America would magically create jobs if we simply shut down all imported goods is far more complex than most people know. International trade has been a staple of the world for millennia and will continue to grow as more countries become better equipped to handle new business.
For more than a decade, my company East West Manufacturing has been dealing with international trade and helping American and Georgia-based companies manufacture components and products from nations all over the world, including Vietnam, China and India. With the growing diversification out of China into Southeast Asia, Vietnam in particular, is on the fast track to become a very strategic manufacturing center.
Countries like Vietnam are inviting foreign investment as China’s labor costs increase, the tariffs on exports rise and companies look for alternatives. Along with the new Trans Pacific Partnership that will offer manufacturing benefits to all its 11 members — China is not a member — Vietnam has the potential to become the new China for certain products and capabilities.
Our company has had feet on the ground in Vietnam since we built our first facility in 2006, and I have seen the shift first-hand. We have recently opened two new divisions in Vietnam, both complementary. The first is a new division to produce printed circuit boards. The second is a medical products division also in our own ISO 13485 facility where we are certified to manufacture plastic and metal parts, as well as electromechanical assemblies for the medical device industry.
It’s not ‘here’ or ‘there’
Why Vietnam? Following Japan’s trajectory of 30 years ago (at least from a quality and cost perspective — remember that Japan was once synonymous with “cheap” — now Japanese car brands routinely take home world-class quality awards), China now competes and loses to countries like Vietnam when it comes purely to price.
Vietnam is eager to follow the Chinese economic growth model and has jumped on the lower links of the value chain and is steadily inching its way upward. Pulling from the pool of our own customers as examples, products and components for markets like HVAC pumps, material handling/conveyor systems used in warehousing and distribution, and even medical devices are all successfully produced in Vietnam.
In today’s flattened-world economy, the concept of made “here” or “there” has little meaning. Few end products are completely made in any one country. American cars contain wire harnesses put together in Mexico from wire made in Georgia, engine components machined in Eastern Europe assembled into finished engines in Michigan, sheet metal produced in Pennsylvania and fasteners cold-headed in Taiwan.
In a world of lean, automated manufacturing where global business is the norm and not the exception, the need to source and make things in the right place has never been more important.
Scott Ellyson is the CEO and co-founder of Atlanta-based East West Manufacturing, a global contract manufacturing company. Ellyson has spent two decades in the manufacturing industry, specifically in the areas of strategy, supply chain logistics and operations. Reach him at firstname.lastname@example.org.