Experts at National Manufacturing Week today said that outsourcing of manufacturing processes continues to gain momentum, as product makers begin to turn their attention beyond China, to such countries as India and Viet Nam.
“People tell me that we’ve probably got about three years in China before their standard of living goes up,” said Richard Ligus, president of Rockford Consulting, a firm that specializes in manufacturing, distribution and supply chain strategies. “After that, they’ll probably go to India. And after that, to Viet Nam.”
Ligus joined other speakers here at a session titled “Offshore Outsourcing.”
Ligus cited U.S. Commerce Department statistics showing that import of assemblies to the United States vastly outnumbers exports, especially in printed circuit boards and motor vehicle electronics. Ninety-eight percent of circuit boards in the U.S., for example, were imported in May 2007, representing a trade imbalance of about $1.62 billion. Similarly, 79 percent of electrical and electronic vehicle assemblies were imported in May, representing a trade imbalance of about $650 million.
Speakers at the session told audience members that the cost advantages of outsourcing component assembly are largely attributable to labor costs. When all costs are considered, they said, total benefit runs between 15 percent and 45 percent. Another major advantage is that outsourcing of manufacturing and assembly of minor components enables companies to focus more effectively on their core competencies. They added that 83 percent of CEOs said they have outsourced processes, and 66 percent of those said it helped their companies be more profitable.
In a talk titled, “Strategic Outsourcing: The Good, The Bad and The Ugly,” Ligus also warned manufacturers that there are hidden costs to outsourcing. Those include inventory carrying costs, legal issues, theft, piracy, training, shipping losses, additional paperwork and loss of control.