A debate is raging at Harvard. If the trend toward outsourcing of critical technologies was a response to quarterly earnings pressure from Wall Street, it would stand to reason that U.S. technology companies’ R&D budgets should fall with rising dependence on outsourced components and processes.
But the opposite is true, which demonstrates that outsourcing is being employed not simply to cut costs, but as a means to direct capital to its most productive long-term uses — the very essence of free-market capitalism. So if all we care about is innovation — as opposed to the direct creation of manufacturing jobs in the U.S. — the market is working fine.
Andy Rappaport at August Capital argues if we are intent on feeding, not killing, the U.S. innovation machine, we need to be very careful about what other incentives we create.
A recent debate at Deloitte looks at the gap in structural costs between the US and offshore manufacturing operations. The profit margins that were once the darling of the offshore industry are quickly eroding. The debate asks, to regain competitive advantage should manufacturing jobs be pulled back to the US?
We recommend checking out all the counter points their article has generated but to summarize the take from Deloitte Partner Dmitri Shiry;
Some companies in some industries are looking hard at jumping on the repatriation bandwagon. This is especially true for those where the intellectual property and quality risks of offshore operations aren’t worth the benefits of lower manufacturing costs. If the U.S. is going to reestablish manufacturing as a catalyst for growth during the next cycle of economic recovery, that trend will need to continue and expand.
And from Principle Tom Morrison;
As companies consider and shift production to U.S. sites, they will face growing challenges in finding and keeping the right set of employees. Skilled technicians, plant operators, and engineers may be hard to find. Innovative approaches to training, development, and retention can help improve the availability of workers with the right skills and the incentive to stay. Relative to many countries around the world, the U.S. and many states do not offer the types of training programs and incentives that can be found in other countries to assist in developing the right skills, exacerbating the shortage. Companies should consider investments and partnerships with local technical schools, community colleges and universities as a means of building talent pools and pipelines. We believe these training and development partnerships will be critical for new skilled workers and ongoing training to keep the workforce up to date. Companies and communities with plans and a commitment to skills development and retention will likely have a leg up.
The International Monetary Fund says the global economy is “recovering faster than expected”, raising its forecast for global growth to 3.1% for 2010, up from 2.5%.
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