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Is the Pandemic a Wake-up Call for the End of Offshoring?

The pandemic has disrupted businesses around the world. And even as many countries begin to emerge from its shadow and work toward recovery, it seems likely that many of the resulting changes will linger.

Employers have given their people greater freedom to work from home if their jobs permit it. If not, measures for workplace safety have increased. For instance, not only does the office HVAC need regular duct cleaning services. HEPA filters or better-designed systems using less recirculated air should also be installed.

But a bigger question looms for many companies, big and small alike. Critical partners in countries such as China or India might shut down without warning, and supply chains can crash to a sudden halt. Is it time to stop drawing from offshore providers and start reshoring those needs?

Upsetting the balance

Outsourcing to other countries is hardly a new phenomenon. It might be seen as an inevitable outgrowth of the movement towards increased globalization over several decades. Other nations have access to different resources; there will be discrepancies in standards of living.

As new markets opened to international trade, companies naturally saw the advantage of sourcing raw materials and labor from those regions. By manufacturing at a lower cost, they could more than offset the logistics involved in bringing finished products to our shores.

And since businesses tend to emulate each other’s best practices, offshore outsourcing quickly became a standard in many areas. It has allowed companies to free up resources for improvement in their core competencies while letting third-party providers take care of work that isn’t seen to add value.

However, offshoring comes with potential downsides. Its critics have been quick to point out ethical issues involved in many countries where workers are underpaid, or suppliers engage in practices that degrade the environment. The distance factor, combined with potential communications and cultural barriers, makes it harder to ensure quality control and standard best practices across partners and sites.

On top of that, offshoring creates job opportunities in foreign countries at the expense of the domestic workforce. When the pandemic struck, driving global manufacturing and supply chains into chaos, it might have tipped the balance in favor of bringing those jobs back into American hands.

Challenges and complications

If your company is relying on partners worldwide to fulfill various needs, the time seems ripe for change. But reshoring operations is easier said than done. And in some areas, it can be more complicated than others.

Consider the relatively simple realm of customer service. Many companies turn to India for their technical support needs. This is partly due to labor costs, but it’s also made feasible by the high level of skill in IT and computers within the Indian workforce.

That skill can be found in our domestic labor pool but at greater scarcity and cost. Companies will have to pay more, either for the workers who are ready now or for the training to develop a candidate’s competency. And those costs will have to be passed on to their customers.

It’s a similar issue with manufacturing, but even more complicated. The global manufacturing industry has evolved over the years to operate in tiers of specialization. When a company like Dell or HP turns to a manufacturer in Taiwan for assembly, they don’t have further involvement in the manufacturer’s dealings with subcontractors. Different subcontractors handle the various components of a laptop, such as chipsets and LCDs; they subcontract further down the line for fabrication and sourcing.

Temporary solutions

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Thus, offshoring can branch out into something less like a supply chain and more like an entire ecosystem of specialized jobs. For a company to attempt to replicate those operations in the USA, they can’t merely reshore the first tier of jobs. They must hire or train specialists who can fill in at every level to achieve domestic self-sufficiency.

Our industries might end up collectively moving towards that direction, but it will doubtless take time. In the meantime, companies can take other steps to reduce their reliance on global supply chains that have been exposed to instability.

As businesses pivot away from products and services that see reduced demand, they should also look for opportunities where consumers are willing to pay more for locally made goods. Instead of continually incentivizing managers to pursue efficiency, they need to reward resilience and adaptability.

Diversify your network of suppliers, even if some of them are more expensive than others. Don’t be opposed to producing and storing excess capacity; it will tide you over in times of shortage. These steps won’t wholly address global risk vulnerabilities, but they can help while waiting out the potential reversal of the offshoring trend.

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