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Outsourcing abroad has proved profitable,
particularly for high-volume producers, but when it comes to the
manufacture of
more complex lower-volume products it makes sense to stay in locations
where
personal contact and a common language are assured.
Increasing competition and shareholder pressure for greater
profitability has
led many UK companies over recent years to outsource production to
places like
Eastern Europe or China.
Although this trend towards off-shoring has
accelerated from the year 2000 onwards, some reports suggest that
although the
continued shrinking of the UK manufacturing sector may appear
inevitable to
some, it is by no means certain. The original attraction of outsourcing
per se
was that it allowed Companies to concentrate on core competencies and
develop
new products. Subsequent outsourcing to off-shore manufacturers
then
added the promise of cuts in basic production cost. However, there
are
arguments now coming to the fore which challenge the common assumption
that
outsourcing usually means off-shoring.
Unit production cost is no longer the only consideration for those
seeking a
manufacturing partner. Those considering such a move are now
thinking
more about the 'total cost of ownership'. That includes an analysis of
both
production cost and of the value the contractor can add to the product,
for
example through innovation, design input or other services which
benefit the
customer. It is arguable that, the more sophisticated the product, the
greater
the case for keeping production in the UK. It is noticeable that
the
manufacturing which has remained in the UK is generally higher
technology and
lower volume. These are the areas where collaboration between company
and the
subcontract manufacturer needs to be at its closest - areas where IP
protection, close cultural match, common language and physical
proximity are
key to achieving customer satisfaction.
Of course the Internet has made it easier to
communicate specifications and instructions to the other side of the
world in
milliseconds but it has not necessarily improved understanding and
trust
between partners or enhanced the flexibility of contractors
overseas. UK
firms needing to change a product at relatively short notice will have
discovered the shortcomings of a long-distance relationship. There is
no
denying that outsourcing abroad has proved profitable, particularly for
high-volume producers. However, there is a strong case for the
manufacture
of more complex lower-volume products to stay in locations where
personal
contact, a common language and shared cultural experiences are assured.
For some companies the promise of off-shoring has
not necessarily lived up to expectations anyway. Even the
production cost
savings may not have come to fruition, once customers took account of
currency
fluctuations, quality issues, high shipping costs, rework, or rapidly
increasing labour costs. And, in an era where corporate social
responsibility is increasingly important to investors, off-shoring can
also
carry some ethical risks. For example the issue of wage
exploitation may
well be scrutinized by stakeholders, and offshore production methods do
not
always match the green aspirations of the company.
In any event, recent reports suggest that many
Chinese workers are now pressing for higher wages, and many eastern
Europeans
have already secured salary uplifts, so this key element of the
production cost
differential may well be eroded anyway.
There is now an emerging opportunity for UK-based
companies and contract manufacturing to stage something of a comeback,
as more
companies widen the criteria under which they properly compare the
value
of home-based and off-shore manufacturing for low to medium-volume work.
Opportunities do exist in the UK market, but only
for the right kind of added-value service. It is hard to justify
bringing
home the traditional high-volume type of work but, provided that UK
contractors
are able to adapt to the demands of specific markets, there is
certainly
potential for growth in the sub contract manufacturing industry.
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