2019

PROGRESS REPORT

MANUFACTURING

No Easy Way Home

Implications for U.S. organizations far reaching if reshoring policies change

During the early days of the new presidency, the "Made in America" slogan seemed to be making a comeback in some Washington, D.C., circles.

U.S. President Donald Trump, who had campaigned on the idea of reshoring jobs back to the United States, was calling out several high-profile organizations—including Ford Motor Co., United Technologies Corp.’s Carrier division and General Motors Co.—that had moved production facilities offshore in years past.1

Trump’s bravado, too, got many organizations worried that goods or services produced with offshore labor might be subject to special tariffs under new administration plans.2

"Every single Fortune 500 company has something outsourced and offshored," said Frank Casale, chairman emeritus of the Outsourcing Institute and co-founder of a professional association called the Institute for Robotic Process Automation.3

Trump’s reshoring approach certainly can’t happen overnight as businesses sort through the complex and far-reaching implications. Corporate America has been put on notice, however, and many organizations are already beginning to prepare for possible policy changes.

Some organizations are exploring options such as automating more operations, using cloud-based technology and training more skilled workers. Experts warn, however, that reshoring labor could prove to be an expensive process that results in organizations actually raising prices to avoid having higher labor costs eat away at their profit margins.

Outsourcing origins

When did outsourcing start to gain traction and become so ubiquitous? Three Harvard Business School professors described in a 2011 report how business practices in the late 1970s and 1980s began encouraging the relocation of labor from the states.

"It became possible and attractive for firms to do business in, to, and from far more countries," the authors wrote. "Changes in corporate governance and compensation caused U.S. managers to adopt an approach to management that focused attention on the stock price and short-term performance."4

These moves, the Harvard professors wrote, resulted in "firms [that] invested less in shared resources such as pools of skilled labor, supplier networks, an educated populace, and the physical and technical infrastructure on which U.S. competitiveness ultimately depends."5

From there, the reshoring effect blossomed, and U.S. jobs kept disappearing over time. For example, some have estimated that 3.2 million U.S. jobs were outsourced to China between 2001 and 2013.6

Naturally, many in the United States consider this outsourcing trend to be a continued economic threat. In a 2016 Pew Research report, eight in 10 adults said increased outsourcing of jobs to other countries hurts American workers7—and leaders like Trump are reacting.

Other offshoring effects

Many economics experts argue that the larger benefits of trade and offshoring—lower prices on imported goods, improved working conditions in developing countries as part of international agreements and higher wages in those countries—should compensate for disappearing jobs in the United States.

A 2016 study by Massachusetts Institute of Technology professor David Autor, however, suggested the costs and benefits are unevenly distributed.8

"It certainly is the case that trade contributes to certain lower-priced goods and services, and on the average, that lowers the cost of living," Autor wrote. "But for displaced workers, the fact that things are 10% cheaper at Walmart is just not making up for the fact that they’re not employed."9

Autor’s study also suggested U.S. organizations’ innovation efforts are negatively affected by offshoring, too. That’s because R&D and manufacturing depend on each other. If they’re separated—with manufacturing offshored while R&D remains in the United States—close coordination that is sometimes needed to innovate can be lost.10

More than labor

Deciding whether to produce a product in the United States "isn’t always about wages," said Ramzi Hermiz, president and CEO of Shiloh Industries, a supplier of light-weighting materials. "[In Mexico], energy is considerably more expensive than it is in the U.S. And actually for some of our products, energy costs more than the labor that goes into it."11

Hermiz said another complicating factor is trade agreements that don’t even involve the United States. Mexico, for example, has negotiated more than 40 trade agreements with several countries. Auto manufacturers might locate in Mexico not to make cars cheaply and ship them to the United States but because there are trade agreements that allow them to avoid high tariffs on goods exported to Europe, Brazil or Argentina.12

With rising labor costs abroad, offshoring actually has declined or stalled in recent years. U.S. jobs lost due to overseas manufacturing dropped from about 156,000 jobs a year in the mid-2000s to about 100,000 by 2012, according to Toronto Dominion Bank.13

Reaching outsourcing limits?

Many organizations have realized the maximum benefit of offshoring, according to David Tapper, vice president of outsourcing and offshoring services at International Data Corp., a market research firm. As wages rise in countries providing offshore labor, offshore providers are turning to more cost-effective solutions such as automation and cloud-based services.14

"Another big part [of the U.S. manufacturing employment problem] is manufacturers are very good with coming up with more efficient ways to produce things, lessening the demand for workers here in the United States," said Gary Burtless, an economist with the Brookings Institution. He also said that while U.S. manufacturing output has increased more than 20% since the recession, factory employment only climbed 5%.15

Harry Moser, the founder and president of the Reshoring Initiative, which helps manufacturers relocate to the United States, said increased automation reduces the wage advantage for countries such as Mexico and China, even if those countries also automate. The jobs that are automated are usually the lowest-skill level ones and have the largest intercountry wage difference.16

Moser explained that advancements in workforce training have made the United States a more attractive option for manufacturers. "The availability of toolmakers, precision machinists and welders has gotten better," Moser said. "It takes years to train them properly, but at least companies are confident that they can find the people they need."17

Offering incentives

Apple has been criticized by Trump and former President Barack Obama for using a network of mostly Asian manufacturers—in particular, Taiwan-based Foxconn—to make its products. Trump has suggested several financial incentives to motivate Apple to reshore its production processes.18

China’s government, too, knows the importance of incentives: It provided Foxconn $1.5 billion in government aid to build a factory there. The government recruits assembly line workers and pays bonuses to the factory for meeting export targets.19

Peter Bryant, managing partner at business strategy consulting firm Clareo, said reshoring could increase the iPhone’s price. "If they have to absorb that price increase, that’s a pretty big margin erosion that shareholders won’t like," Bryant said.20

Higher production costs also could result in less investment in R&D and new technologies over time, according to Gary Pisano, a Harvard Business School professor. He said this could hurt Apple and the U.S. economy.21

"I don’t want to make things the Chinese make," Pisano said. "I want to make things the Chinese can’t because our productivity and our skill base is so much higher."22

Outsourcing to the U.S.

It’s not just about U.S. organizations offshoring work away from the states. There’s also a large market for international outsourcing firms that brings workers to the United States. India, for example, has a $108 billion technology outsourcing industry employing nearly 3.7 million people, and the United States accounts for about 60% of the industry’s revenue.23

This pipeline of talent and skills might be affected, too, if Trump’s rhetoric becomes reality.

These workers use H-1B visas (a nonimmigrant visa that allows organizations to temporarily employ foreign workers) to fill jobs for which there aren’t qualified workers in the United States. There is a high demand for these visas from U.S. technology firms such as Microsoft and Intel, and Indian outsourcing organizations.

During his election campaign, Trump wrote that he would "end forever the use of the H-1B as a cheap labor program," but no actions have been taken to restrict these visas since he’s been in office.24

Is reshoring realistic?

R.G. Conlee, chief innovation officer at data-processing firm Conduent Inc., said the volume of jobs that could be reshored will not equate to the scores that were lost. "Instead of 3,000 or 5,000 offshore jobs, maybe I’ll have 50 onshore," said Conlee. "The number of jobs needed to monitor [software] is much smaller than the number needed to do data entry."25

Moser said claiming or trying to reshore millions of jobs in a year would be "totally irrational, irresponsible, and we don’t have the workers—the skilled workers—to do it. It’s taken 60 years for [offshoring] to happen, and it’s going to take decades for it to reverse."26

—compiled by Tyler Gaskill, contributing editor

References

  1. Lauren Weber, "Trump’s Attacks on Outsourcing Put Companies on Guard," Wall Street Journal, Jan. 23, 2017, http://tinyurl.com/wsj-outsource-trump.
  2. Ibid.
  3. Ibid.
  4. Steve Denning, "Will Trump Discover Why So Many Americans Were Left Behind?" Forbes, Nov. 16, 2016, http://tinyurl.com/forbes-trump-left-behind.
  5. Ibid.
  6. Katherine Peralta, "Outsourcing to China Cost U.S. 3.2 Million Jobs Since 2001," U.S. News and World Report, Dec. 11, 2014, http://tinyurl.com/us-news-report-outsource.
  7. Pew Research Center, "The State of American Jobs," Oct. 6, 2016, http://tinyurl.com/pew-research-jobs.
  8. Peter Dizikes, "Training Places," <>MIT News, March 9, 2016, http://tinyurl.com/mit-training-places.
  9. Ibid.
  10. Red Jahncke, "Millions of Lost American Jobs Show the High Cost of Unfettered Free Trade," Investor’s Business Daily, Jan. 27, 2017, http://tinyurl.com/invest-biz-daily-jobs.
  11. Laura Putre, "The Ups and Downs of Made in the USA," IndustryWeek, Jan. 30, 2017, www.industryweek.com/competitiveness/ups-and-downs-made-usa.
  12. Ibid.
  13. Weber, "Trump’s Attacks on Outsourcing Put Companies on Guard", see reference 1.
  14. Ibid.
  15. Annie Baxter, "How Much Could the Return of Factory Jobs Add Up To?" Marketplace.org, April 18, 2016, http://tinyurl.com/mktplace-jobs-add-up.
  16. Putre, "The Ups and Downs of Made in the USA," see reference 11.
  17. Ibid.
  18. Steve Minter, "Apple and the Battle for American Manufacturing," IndustryWeek, Jan. 26, 2017, http://tinyurl.com/ind-week-apple-manuf.
  19. Ibid.
  20. Ibid.
  21. Ibid.
  22. Ibid.
  23. Newley Purnell, "Indian Outsourcing Firms Prep for Curbs on H-1B Visa Workers Under Trump," Wall Street Journal, Jan. 19, 2017, http://tinyurl.com/wsj-indian-outsource-firms.
  24. Ibid.
  25. Weber, "Trump’s Attacks on Outsourcing Put Companies on Guard", see reference 1.
  26. Jim Zarroli, "‘Reshoring’ Trend Has Little Impact on U.S. Economy, Study Finds," NPR.org, Dec. 16, 2014, http://tinyurl.com/npr-visa-workers.

Getting to Know …

Sandra Storli

Current position: Works in the field of corporate quality and compliance.

Education: MBA from Franklin University in Columbus, OH; master’s degree in quality and regulatory from Purdue University in West Lafayette, IN.

What’s the best career advice you ever received? Never give up, and continue to pursue excellence.

What was the last book you read? Retire Inspired: It’s Not an Age, It’s a Financial Number (Ramsey Press, 2016) by Chris Hogan.

Have you ever authored an article? I wrote an article on process auditing for The Auditor, an Exemplar Global publication, and co-authored "The Current State of Validating the Accuracy of Clinical Data Reporting," for the Journal of Infection Control and Hospital Epidemiology (June 2013), and an ASQ technical report, "Best Quality Practices for Biomedical Research in Drug Development" (August 2012).

Are you active in ASQ? I serve as past chair and membership chair of ASQ’s Northeastern Illinois Section, membership chair of the Audit Division, audit chair of Human Development and Leadership Division, and regional counselor of the Food, Drug and Cosmetic Division.

Any recent honors or awards? Elected to ASQ’s 2017 class of fellows.

Did you have a mentor? Doris Sjobolm, who inspired me that it’s never too late to pursue your dreams. I met her during my freshman year in college, and she was going back to school at the age of 75.

What was the last movie you saw? "Patriots Day," the drama-thriller film about the 2013 Boston Marathon bombings.

What do you do for fun? Gardening and exercising. For a few years, I enjoyed running and completed five marathons. I enjoy cycling now.

What is your quality take? Quality is the thread that connects every aspect of our lives. Quality matters in everything we do. It allows us to continually improve and strive for excellence.


ASQ

ASQ Announces 2018 Board Candidates

ASQ has announced the candidates for the 2018 board of directors. This time, two candidates are vying for the office of chair-elect. Here is the complete list of candidates:

  • Past chair: Eric A. Hayler, lean Six Sigma Master Black Belt, BMW Manufacturing, and principal, Hayler Group, Boiling Springs, SC.
  • Chair: Elmer K. Corbin, director and project executive, IBM Watson Client Success, IBM Corp., McKinney, TX.
  • Chair-elect (through the ASQ Nominating Committee): Benito Flores, dean, school of engineering and technologies, Universidad de Monterrey, San Pedro Garza Garcia, Mexico.
  • Chair-elect (through petition): Geoff Vining, professor of statistics, Virginia Tech, Blacksburg, VA.
  • Treasurer: Francisco Santos, global quality, Metalsa, Mexico.
  • Director: Scott Moeller, director of quality engineering and Six Sigma Black Belt, Baxter International, Round Lake, IL.
  • Director: Paulo Sampaio, professor of quality and organizational excellence, University of Minho in Portugal, and visiting scholar at the Massachusetts Institute of Technology, Cambridge.

Election rules do not allow candidates to campaign or have others campaign for them, but proxies and position statements for each candidate running for a contested office will be sent to all regular members by Feb. 24. The results of the election will be announced on April 30 during ASQ’s annual business meeting, to be held in conjunction with ASQ’s World Conference on Quality and Improvement in Charlotte, NC.


New @ ASQ

UPCOMING EVENTS
Four ASQ division and section events are planned for later this year: The ASQ North Jersey Spring Quality Conference will be held April 13 in Whippany. Visit www.springqualityconf.org for details. ASQ’s Biomedical Division will host a conference on process validation and integrating risk management May 31 -June 1 in Heredia, Costa Rica. Visit http://tinyurl.com/bio-division-conf. ASQ’s Inspection Division will hold its conference Sept. 14 in Grand Rapids, MI. Visit http://tinyurl.com/inspect-division-conf. ASQ’s Reliability Division will co-host the Accelerated Stress Testing and Reliability Conference Sept. 27-29 in Austin, TX. Visit www.ieee-astr.org.

NEW DFSS TRAINING
A new ASQ training course focused on design for Six Sigma (DFSS) will be offered May 22-26 at ASQ headquarters in Milwaukee. The course, developed last year with the help of Master Black Belts (MBB), reliability and quality engineers and statisticians, will center on leading a DFSS team through the define-measure-analyze-design-verify phases. The course is geared toward Black Belts (BB), MBBs, and corporate DFSS team leaders and members. The only prerequisite for attendees is to be proficient as a practicing BB. Individual and group training options are available. For more information about this instructor-led, classroom training, visit https://asq.org/training/design-for-six-sigma-dfss-dfssasq.


Tune In

The latest ASQTV episode examines nonconformance, corrective and preventive action, and how each is essential to mistake proofing organizations. Visit http://videos.asq.org to access the full video library.


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