What Was the Outsourcing Outcry Really About?

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What a difference a few months make. Five months ago, you could not go more than a day or so without an article in a newspaper or magazine about the outsourcing crisis.
Now you could almost forget there even is a China. Recent newspapers stories say manufacturers are having trouble finding the skilled labor they need.
I’m sure there are still manufacturers feeling the pressure of outsourcing, but recovery is showing its face in the manufacturing sector.
There are many business owners breathing a sigh of relief and confronting the good problem of how to ramp up. But they are not out of trouble yet. The same outsourcing freight train is continuing its relentless surge.
Why was the alarm raised in the first place if the business cycle would eventually come to the rescue? During the bottom of the downturn, workers feared the loss of their high paying manufacturing jobs and business owners saw the crumbling of their businesses’ value just at the point some were contemplating selling or retiring and turning the business over to their successors. The panic was caused by the perceived loss of value to labor and to business net worth.
The recovery will temporarily rescue many marginal businesses as a booming U.S. economy can easily absorb the increased supply from China as well as everything that can be made in the U.S. But there will still be slow erosion of American jobs to low-cost countries, and it will not be obvious until the next downturn.
The boom of the 1990s was historic for its length and strength, and so some economists are predicting the start of the next downturn as early as next year. Whenever the downturn hits, the crunch will be on again.
How can the small to medium-sized business protect its value for its owners, and how does it protect the value of labor? There is only one way to preserve company value. Jack Welch, the former chairman at GE, put it very well, saying you either grow or die.
Every company needs to develop a strategy for growth. If it doesn’t, it becomes a stationary target for competitors, both foreign and domestic.
The strategic plan needs to answer the following questions:
¥ How does my company use its expertise to grow its customer base?
¥ How does my company provide customers the product and service they will pay a premium for and not be tempted to go to low-cost solutions?
¥ How can my company level the business cycle (exports)?
¥ If there are pieces of my product that have high labor costs but low contribution to margin, maybe I outsource those parts, which will provide lower cost to my customer before he decides to look to China. If my product is essentially a commodity, is there a service or innovation that can be added to make my product critical to the success of the customer?
These and other questions need to be thought through in developing a growth strategy. While companies are doing lean, six sigma or other process and quality improvement programs, they need to develop and execute a strategy to grow the business.
Some other recent news items also were interesting.
Recent data indicates Asian auto companies continue to grow market share in the United States. Also, Japan’s balance of trade with China just went positive, and the China boom is lifting the whole Japanese economy.
Imagine Japan, a country with higher labor costs than the United States, has a positive trade balance with China. Of course, Japan was doing lean and quality programs while U.S. companies were mired in the methods of the 1950s. Now, the latest in Japan is time-based competition, which is the process of bringing innovation to your customers, eliminating bottlenecks and improving speed. Japanese companies have growth strategies. Many U.S. firms are just starting with the basics of lean, while the Japanese are going to the next level.
Priorities should be clear. Companies need to develop and execute strategies for growth, get fast and improve processes and quality. Otherwise, you will also eventually see your company give way to the competition, whether the competition is a low-cost country or another U.S. company.
Joe Geck is the principal of Accelerated Solutions in Waukesha. He can be reached at (262) 542-2960, or at joegeck@global-intercultural-communication.com.
June 25, 2004, Small Business Times, Milwaukee, WI

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