One year ago on this page, we examined the question of whether globalization offered promise or peril. Cost reduction is usually touted as the principal driving force for outsourcing but, as John Foreman, president of the Bourton Group, points out this month in Uncommon Sense, outsourcing won't necessarily cut costs.
Indeed, writing in Executive Agenda recently, three executives in A. T. Kearney's Operations Practice say that the new economy dogma-outsourcing creates value-has turned out to be a strategic disaster for many manufacturing companies. Mark Coming, Günter Jordan and George Hughes point out that companies can suffer serious repercussions if they outsource manufacturing without fully understanding the strategic risks. The consequences of a bad bet on outsourcing can range all the way from modest cost overruns to pirated brand-name products. As a result, they say companies are now questioning, and in some cases reversing, their past outsourcing decisions.
Even so, the thorny issue of manufacturing jobs lost to globalization remains. Secretary of Labor Elaine Chao and others argue that the "jobless recovery" isn't really so jobless, pointing to four straight months of job growth totaling 328,000 jobs. The National Association of Manufacturers (Washington) forecasts that manufacturing employment will turn the corner in 2004, showing a net gain of 250,000 jobs by year end. But even if this happens, it will still leave the United States with a net loss of at least 3 million manufacturing jobs at year end.
Now the trend to move service and high-tech jobs offshore is growing precipitously. Forrester Research Inc. (Cambridge, MA) predicts that American employers will move about 3.3 million white-collar service jobs and $136 billion in wages overseas in the next 15 years. Even though Western companies are said to be keeping their most crucial work close to home, high-tech companies are increasingly moving knowledge work to cheap-labor sites. For example, IBM recently said it will transfer almost 5,000 programming jobs overseas, mostly to India.
The fact is that globalization is irreversible and increasing. According to ASSEMBLY magazine's eighth annual capital spending survey, 39 percent of U.S. manufacturers have plants outside the country. The challenge for U.S. manufacturing is how to keep work-and jobs-here in America and benefit from globalization. To accomplish this, it's critical for U.S. industry to accelerate innovation and investment to continue creating the new products and new processes that are vital to a thriving manufacturing sector.
But this will never happen until U.S. industry gets meaningful relief from burdensome government regulations, backward-looking labor union contracts and, arguably worst of all, an out-of-control plaintiffs bar. This election year might be a good time to support candidates for office who have a track record favorable to manufacturing, and then hold them accountable for results.