Offshore Outsourcing and the US Manufacturing Sector Under Trump

December 28, 2016 5:16 pm | Updated 1 year ago.

Offshore outsourcing some of the processes apart from lessening the cost has given organisations a competitive edge over their competitors. For many companies in the developed economy, offshore outsourcing entire process to an offshore location is the key to success.

Bringing Manufacturing and Service Sector Jobs Back to America

Donald Trump’ official site states that America has lost close to a third of its Manufacturing jobs to offshore outsourcing, since NAFTA and when China joined the World Trade Organization. While this data is correct and America did lose close to 5.6 million jobs between 2000 and 2010; a large number of these jobs were lost due to automation and it may not be correct for the Trump administration to try and bring jobs back to America by simply imposing tariffs on imports from Mexico and China and putting in place other restrictive trade policies. Such attempts at artificially restricting offshore outsourcing of jobs may force the American companies to hire expensive American resources and make these companies less competitive in global scenario. The sentiments of the private equity firms that have increased the pressure on the American companies to cut costs and thereby forcing them to do more offshore outsourcing may also need to be managed. Equally important is the fact that even if the old jobs did come back, the skill sets required may be totally different and the American work force may need to be re-skilled before they can be productive in these newly created job opportunities.

Trump administration will, however, be right in maintaining that offshore outsourcing by American companies to overseas locations purely for cost arbitrage is no longer a sustainable argument. The cost gap for similar skill set required for manufacturing industry, between US and China is possibly less than 15% today. The cost gap for low end IT skills between India and US has also reduced dramatically over the past decade and is possibly even less than 15%.

D2e’s Opinion on offshore outsourcing

It is D2E’ opinion that in today’ digital age, keeping the ever increasing level of automation and the changing skill set in mind, it makes less and less sense for the American companies to indulge in offshore outsourcing for reasons of labor cost arbitrage. In D2E’ opinion, all future decisions of offshore outsourcing by American companies should be based on availability of resources and talent pool, without causing any diversion for the company from focusing on its core competency.

Given this scenario, we are seeing a large number of American companies doing “Operations Analytics” to determine what level of optimization is possible to the current operational processes of the company and then decide what functions to in-source and what functions to outsource given the changing technology stack and rapidly increasing levels of automation. Offshore outsourcing is also a valid option.

D2E’ US partners like Affinity Inc. ( www.affinityit.com ), have matured “Operations Analytics” practice to help the American companies not only in optimizing their current processes, but also in deciding what functions to keep in-house, what functions that have been currently outsourced to be brought back and to opt for offshore outsourcing for the remaining functions. Once a decision is made on the processes and functions, a well defined methodology and set of criteria is needed to decide on offshore outsourcing. What functions to be done in America and what functions should be outsourced to overseas locations, not for cost reasons but keeping the overall strategic plan of the company and its competitive landscape in mind would require a lot of thought.

Once an objective decision is made on what processes and functions to offshore outsource to overseas locations, the work is then assigned to one of the specialty partners in D2E’ Partner Network based on skill set requirements as the right offshore outsourcing vendor is a must.