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Saving Jobs by Sending Jobs Offshore
I claim that “sending jobs abroad saves jobs”; or to put it another way, “Saving jobs by shipping jobs overseas. The term “jobs shipping” is as divisive during an election as the topic of abortion. The idea that shipping jobs overseas can save jobs in the United States defies all thinking, so how can it be?If you are a union member, factory worker, administrative person or manager in the United States, this article is for you.
There was a very effective negative TV ad that ran during the California Senate race between Barbara Boxer and Carly Fiorina. The ad mentions the alleged 30,000 jobs that Fiorina shipped overseas while she was CEO at Hewlett Packard from 1999 to 2005. What the ad didn’t mention is that when Fiorina did this, the economy was going through the dot.com and tech bust of the 2000 recession. Not to mention there was a 911 that also set the economy back. In October 2009, the number of Hewlett Packard employees was over 304,000; layoffs of 30,000 people would be about 10%; sounds reasonable. What the article didn’t mention was the fact that she also cut out 3,000 management potions.
THE CASE FOR SAVING JOBS BY SENDING JOBS OFFSHORE: Why did companies make the painful decision to move their production abroad? As hard as it is to believe, shipping production from the United States to another country to reduce the “Cost of Goods” is nothing new. The 1960s brought us an explosion of Made in Japan products. Back in the 1960s, shortly after World War II, “Made in Japan” had a negative connotation. In the 1970s, the aerospace industry sent components to Mexico for assembly. The mid-1980s 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 1990s brought us the “North American Free Trade Agreement.” It is obvious that American industry has always been concerned with reducing material costs and looking for a cheap source of labor.
Business has always been about operational efficiency. Unfortunately, process efficiencies such as the wave soldering machine and the automatic insertion machine have eliminated hundreds of thousands, if not millions, of jobs. These two machines eliminated the person who led a career in the electronics industry. These two machines are a perfect example of how America’s factory workers were replaced by efficiency. The impact these innovations continue to have on the electronics industry is immeasurable. It’s not about going abroad; that’s good management.
Using case study no. 1 as an example, we can see how a speaker company based in Toronto cannot be competitive using its 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 compete, even with their manufacturing advantage. Their domestic labor kept them out of the market. In combination, vertical integration and expensive labor created a situation where their products became too expensive for the market, resulting in a loss of sales. The Toronto-based speaker company knew it needed to go overseas and make its product “Turnkey,” (completely finished), in order to compete in the high-margin market.
Jobs that are saved by sending products abroad are as follows:
• Engineering – These jobs are retained when jobs are sent overseas as it would be unwise to outsource your engineering to another company. Liability versus risk would have little advantage. The companies are marketing, “Designed in the USA”. Radio Shack labels its products “Assembled in the United States with foreign and domestic parts.” They also label their product with the country of origin for a product that is 100% manufactured and assembled at sea.
• Industrial Designers – These positions MUST remain in the United States as our domestic market does not accept designs from outside of Asia. American design will always win over Asian design. Simply put, domestic designers have a better sense of American trends than an industrial designer in a factory somewhere offshore.
• Sales and Marketing – These positions are kept alive by products that are competitive in the market
• Shipping and Receiving – For obvious reasons, these positions are held as the product flows from the factory to the warehouse and back to the retailers.
• Order Entry, Customer Service and Accounting Departments – These departments are busy with their normal paperwork flow. However, without competitive pricing for their products, these departments could experience layoffs.
There is a Win-Win scenario for sending products abroad that suits everyone:
• Keep high profit margin products in the United States. Although the profit margin will be higher, the volume will be lower, that’s just a fact.
o Transfer of high-volume, low-margin products abroad. This keeps our domestic workforce producing high margin products.
o The level of domestic factory workers can be adjusted according to time and quantity.
• Product development has always been a matter of resources, engineering resources, factory resources, availability of high-tech equipment, quality assurance facilities, etc. Taking products abroad 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 overseas gives you instant access to resources you didn’t have at home.
o The quality of your product can actually be improved. The factories you would choose to manufacture your product will be more than actually ISO9000 factories. There will be procedures built in that will not allow your product to go astray and be a loser.
o Because you have established “quality assurance” procedures for factory exit inspection. If the incoming inspection team on the domestic side determines that the product is outside the agreed QA standards, the entire lot is rejected. Now that’s risk management at its best.
• Business has always been about operational efficiency. Process efficiency, such as using a wave soldering machine, an automatic insertion machine or a robot
o This efficiency will allow American industry to increase its labor rate only up to a point. The construction industry reduces its labor costs by building products in the workshop and taking them to the site for installation at a higher labor rate. However, we have finally reached a point where technology and higher labor rates are impacting costs and moving production, or part of production offshore, becoming a necessary component of the modern business model.
Hurt feelings in the US! Sending jobs abroad! It has become more of a political hot topic than a reality. For more than half a century, the United States has been importing products from other countries. After World War II, we imported cheap goods from Japan. Since then we have imported goods from Korea, Taiwan, Mexico, Philippines, Malaysia, Vietnam, Singapore, to name a few. The question is: In which 3rd world country will the United States set up shop?
It has always been our way (those of us who make products outside our borders) to pull out and move to another country once we raise the local standard of living and labor costs rise too much. Again and again offshore production is developed and moved to countries with an alternative source of labor. We tend to pull back and exploit various 3rd world countries. It’s not just Americans who do this, after all we are a global economy.
The bottom line is that we all have compassionate hearts and hate the idea that someone might suffer if they lose their job. However, it is the shareholders whose best interests must be of utmost concern. If there is equipment that can increase efficiency, then it is everyone’s responsibility to present a proposal to management.
Ensuring that the company remains competitive in the market should be one of the tasks!
CASE STUDY no. 1: The loudspeaker industry in North America was at one time an industry employing thousands of employees. From the factory workers to the supporting support staff, the audio industry was an American industry. It’s still there, but it’s different than it was. The “After Car” audio market had to carry the label “Made in USA” for the longest time. Once Wal-Mart started buying goods overseas with the intention of achieving certain prices, “Made in USA” no longer mattered.
This mindset is why the speaker industry in the United States. The audio industry was forced to go abroad to meet the price. The rationale was to stay in business by renting the product instead of losing sales because prices could not be met. There are no more speaker cabinet manufacturers in the United States or Canada. The last speaker cabinet manufacturer in Canada, Audio Products International, put their production line in a “moth ball” around 2005. They now buy their speaker cabinets from China as a turnkey product. The problem they faced was that the cost of making their own speaker enclosures drove their price out of the market and they could no longer compete.
CASE STUDY no. 2: The electronics industry is not what it used to be. As a boy in the early 1960s, I remember picking up my mom from work with my dad. What I remember was all the women, in one room the size of a warehouse, soldering all day. The company my mom worked for was Teledyne.
Those jobs went down the drain with the advent of the wave soldering machine. A wave soldering machine is a bath of molten solder. The printed circuit board is then driven along the carriage allowing the electronic components to be dipped in a bath of molten solder; it is automatically soldered. The resulting quality is better, and the use of the wave soldering machine is reduced by at least 80%.
The automatic insertion machine was the next process efficiency that would change the face of electronics forever. An average automatic insertion machine will install 25,000 electrical components in an eight-hour shift. The difference between a factory worker loading a printed circuit board (pcb) and an automatic insertion machine is exponential. Hundreds of thousands of jobs were replaced by the development of the automatic insertion machine.
The design and use of wave soldering and automatic insertion machines were not intended to eliminate over a million solder spots, but to reduce labor by creating efficiencies. However, decisions about the use of these machines are driven by the assumption that not using them would put them behind the competition, which would surely use them. The fear of non-competitiveness was the driving force. It wasn’t about saving the soldering point; it was about staying competitive in their industry. Management has always been focused on efficiency and achieving the best return on shareholders’ investment.
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