America could face the same dilemma as
Eastern Europe, which served as an attractive source of low-cost labor about 10
years ago. Because the local workforce
was young, and the number of plants so
high, wage rates moved up quickly, dimming the region’s attractiveness to producers. The same scenario could play out in
areas such as Central America, where
country populations are relatively small,
and access both to infrastructure and basic
needs such as water is limited.
Jim Kelly, chief executive officer of the
management consultancy JVKellyGroup
Inc., says a desire by companies to reduce
supply-chain risk might drive some global
businesses to Latin America. He cites a
new study by AMR Research Inc. (now
part of Gartner Research), which found
that 45 percent of the 500-plus companies
surveyed had experienced a disruption in
their supply chains during the past year.
Of that number, 8 percent reported a
problem that cost them $5m or more.
Kelly sees agricultural production as
one area that is ripe for growth in Latin
America. There could even be a return of
some services, particularly call centers,
to the U.S. and Canada, he says. In addition, companies might choose to allocate
certain discrete business processes, such
as performance-metric analytics, to a
local provider.
But Kelly doesn’t believe that consumer products manufacturers will abandon their low-cost plants in Asia for the
western hemisphere, let alone the U.S.,
any time soon. “Americans have given up
on a lot of different industries [because]
they can get it better, cheaper and faster
elsewhere,” he says. The lure of cost savings offered by Asian producers is still too
strong to ignore.
ing expense are major elements in that calculation. So is the financial stability of
overseas suppliers.
China remains one of the top locations for outsourced manufacturing,
even though growth there has recently
slowed, Wetekamp says. Other Asian
nations, including Malaysia, Thailand
and Indonesia, are presenting themselves as alternatives.
Less attractive to multinationals,
despite the proximity issue, are countries
in the western hemisphere. Existing sourc-
ing relationships are deep and “very
agrees Peter Scott, vice president of sup-
ply chain solutions with Exostar, creator
of a technology platform for trading-
partner collaboration. “People are using
sourcing almost as a competitive
weapon.” This despite real concerns
over IP protection and regulatory issues
in China. Executives are beginning to
focus on “top-line” considerations
related to long-term marketing strategy.
“A lot of the savings that companies were
getting in labor were being eaten up by
transportation cost.”
— Adrian Gonzalez of ARC Advisory Group
It’s Still About Cost
Jim Wetekamp, senior vice president of
solution strategies with BravoSolution,
agrees that companies are beginning to
incorporate an array of risk-management
concerns into their sourcing strategies.
Nevertheless, “for the majority of our
clients, the number-one consideration for
outsourcing is still cost.”
Wetekamp is referring to more than the
hourly wage of a factory worker. He says
businesses are factoring in all of the costs
related to start-up and ongoing opera-
tions. Transportation and inventory carry-
sticky,” Wetekamp says, adding that the
business case for locating production in
Latin America “is not compelling enough,
from what I’ve seen so far.”
Lawton agrees. “To some degree, [the
return to the West] has been overstated,”
he says. “In some strategic cases, with
specific components and services, you
do see some of that. But it’s so rare that it
makes news.”
In the long run, the main reason why
companies will decide to remain in China
is to be in a position to sell into that mar-
ket. The big automakers have already
established joint ventures with local man-
ufacturers, allowing them to redistribute
their brand in China, Wetekamp says. The
prospect of serving a nation of more than
a billion people is simply too compelling
to pass up.
ARC Advisory Group, www.arcweb.com
BravoSolution, www.bravosolution.com
Dun & Bradstreet, www.dnb.com
Exostar, www.exostar.com
IDC Manufacturing Insights,
www.idc-mi.com
iSuppli, www.isuppli.com
JVKellyGroup, www.jvkg.com
Panjiva, www.panjiva.com
Resource Links
