Time to rethink offshoring?
1 min read
New research has emerged suggesting that rising oil prices alongside wage inflation in places like China, Mexico, Malaysia and Brazil are undermining the reasons that manufacturers moved offshore.
Although written from US viewpoint, a McKinsey quarterly report, ‘Time to rethink offshoring?’ suggests that manufacturers may need to re-evaluate the location of their manufacturing and, says McKinsey, might therefore signal some good news for local UK manufacturing.
In the week when the UK government announced its renewed manufacturing strategy McKinsey’s work says the production of high-tech goods has moved steadily from the United States to Asia over the last decade, but soaring oil prices, a falling dollar, and rising wages are undermining some of the reasons manufacturers moved offshore.
For managers of global supply chains, the question now is whether or not to consider scaling back offshore production by returning operations to, or closer to, the United States, the report suggests.
Although McKinsey’s analysis shows that for a number of high-tech products, costs have changed enough to undermine the benefits of Asian production significantly, the decision to rein back offshoring isn’t straightforward, it says.
“In rethinking your global supply chain, you must carefully evaluate the importance of speed, the availability of skilled talent, the potential for further productivity gains in Asia, one-time transition costs, the local import and tax implications, and organizational interfaces,” the report concludes.
