Recent,ly Business Week published an article that predicted that slowly American manufacturing jobs are coming back to US, and that the rate will accelerate in the coming years. The article explained various anecdotal evidences and statistics to prove the point.
Following are some of the evidences for outsourced manufacturing jobs are coming back to US:
The Institute for Supply Management (ISM) reported that manufacturing companies in the US have expanded for the past 24 consecutive months.
The Federal Reserve reported that US manufacturing jobs gained year-over-year 3.8%.
Following are some of the reasons quoted for manufacturing jobs coming back to the US:
The labor cost in China has been growing by 15%-20% on a yearly basis; this is 30% lower than low-cost cities in US. It has been predicted that the manufacturing cost in China will equalize with the American manufacturing cost by 2015.
Similar to manufacturing jobs coming back to the US, ITO and BPO jobs are coming back from India to the US. Several new names are formed to denote this phenomenon, such as onshoring, insourcing, and US rural sourcing. The big question is how it will affect India’s status as the only country for ITO and BPO jobs? At this time no one knows the extent to how much it will affect India. Also, in the US the current unemployment rate in IT is less than 4%. Still, companies are having a tough time finding qualified IT workers in hot technologies like web design, Java, cloud computing, and mobile technology.
McKinsey did a research report on onshoring. In the report they found out that the IT wage in smaller US cities are 30% lower than in bigger US cities. Meanwhile in India both attrition rate and wages are increasing sharply, which puts pressure on big Indian outsource companies like TCS, Wipro, and Infosys to maintain their profit margin. These Indian outsource companies’ business model is to hire more IT workers early and make them work in an outsourced project. So with less quality workers in India, a high attrition rate, and a steep wage rise, it will be difficult to keep the profit-margin without rising their client engagement fee.
American companies are watching the trends in India, and are making wise decisions on their sourcing strategies, choosing from various sourcing strategies like onshoring, ruralsourcing, closeshoring, nearshoring, and offshoring. However, the current demand for IT workers make American companies look to India as their preferred offshore destination for their large-scale IT needs in which cost arbitrage is the main requirement in their projects. This trend will continue until the cost of IT workers India is less than in US. No one knows how long it will take for Indian IT salaries to be comparable to American IT salaries and when cost arbitrage will no longer be possible. Until that day, India can enjoy large scale ITO and BPO projects coming their way.
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“Quality is Job 1”
Many in the U.S. may remember that Ford Motor Company slogan in the 1980’s to 1990’s. Quality was in fact a winning formula for Ford as it gained market share and proved its heritage from the days of Henry Ford. And ‘Total Quality Management’ (TQM) was one of those fads, or flavor of the month in management circles. And like all fads, they come and go, with managers looking for the next “buzz” management strategy to implement. The recent product recalls plaguing Toyota, Johnson & Johnson, and even Ford Motor Company ironically demonstrates how yesterday’s number one strategic initiatives can fall by the way side. That’s why lessons should be learned from past and present product recalls and applied to LPO management. Read more
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The most recent recession in the U.S. has been affecting industries across all verticals. President Obama has appointed former business executives like Charles E Phillips to his economic advisory board to help reverse the damage, but still companies are feeling the burdens of the economy and resorting to other measures to stay afloat.
It may sound indifferent, even callous to say that recession may be good for the outsourcing industry but the ground situation at least supports this assertion. Because the cost argument works so strongly in favour of the outsourcing model, experts predict that it is likely to break through even the remaining resistance as business becomes more adept at using the tool to cut cost and improve efficiency. Read more
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