Benefits of Insourcing & Reshoreing Production From China to The United States| |
Patrick Bain, Stephen Parker, Daniel Walsh, & Rodolphe Gauthier| 12/11/2012|
Table of Contents
Length of the Supply Chain4
Transportation and fulfillment costs13
Operational Security Costs14
For over a decade, jobs have been endlessly shipped from the United States to other areas of the world in a tide of outsourcing. Drawn by the promise of cheap labor and reduced cost, China has received the bulk of outsourced manufacturing jobs from the United States. In a reversal of trends, some of these jobs are being reshored to the United States, and some new production is being insourced to domestic suppliers. The purpose of this paper is to examine the cause of this trend by uncovering the true effect on the cost of sourcing production from China. Traditional views of cost savings have primarily looked at labor cost and other costs directly associated to production. There are, however, other costs to consider including the security of operations, product quality, impact on society, and the total cost of doing business. All of these aspects clearly illustrate why many companies choose not to source production to China. Overall, the business environment in China can be caustic to profitability and presents several previously unseen challenges. The United States offers a much more stable and secure environment with much less risk and a higher margin for long term profitability. While outsourcing to China will still play a large role within the global supply chain, it is not the appropriate solution for every business.
In recent years, the tide of outsourcing jobs to China has turned to insourcing or reshoring them to the United States. There are several benefits to insourcing and reshoring jobs from China to the United States. These benefits include improvements to operational security, quality, society, and total cost. As more companies understand these benefits, the rate of insourcing and reshoring to the United States will likely increase. Operational Security
In China, the largest threat to operational security is the theft of intellectual property rights. In the economies of the West, strict laws and patents protect the intellectual rights of domestic and foreign businesses. In China, the legal system is much more loosely defined which offers various loopholes for exploitation (Jayaraman, 2009). For companies operating in China, the theft of intellectual property continues to be a major problem. In 2003, companies based in the European Union, Japan, and United States lost about $60 billion due to intellectual property rights infringement. In 2006, the European Union Chamber of Commerce members overwhelmingly proclaimed Chinese intellectual property rights regulations and enforcement to be ineffective. (Marsh, 2011). The problem is twofold and stems directly from Chinese culture. First, Chinese culture tends to favor being indirect and vague. Directness is seen as being rude and disrespectful. This can be seen in Chinese business negotiations. Chinese businessmen often end negotiations with some form of maybe as the final response. This allows them to avoid rudely declining the offer to the other party’s face. Many regulations are worded in similarly vague non-committal language that leads to the various loopholes (Jayaraman, 2009). Second, the copycat culture is an integral part of the predominantly Confucian Chinese society. Confucian...