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Joe Klocko: Have your business benefit from ‘the onshore effect’

Entrepreneurs Corner

Posted: November 2, 2011 1:55 a.m.
Updated: November 2, 2011 1:55 a.m.
 

ABC World News recently reported that 3 million jobs are on their way back to the U.S. from perceived low-cost countries such as China.

Why? Well, according to the highly respected Boston Consulting Group, one factor is that, in the year 2000, productivity-adjusted wage rates in China were only 23 to 36 percent of their U.S. equivalents.

As a result, product manufacturing and its related employment were in the offshore mode to places such as China and other low-cost countries (LCCs).

By 2015, the BCG projects that Chinese productivity-adjusted wage rates will have risen to between 44 and 69 percent of their U.S. equivalents.

With that relatively large gap in 2015 wage rates, one might think that very little manufacturing will be returning to the U.S. in the foreseeable future.

However, that’s not the case when viewed on a total-cost basis, especially when items such as transportation, duties, cost of quality, inventory and other costs are factored in.

In fact, when taking all costs into account, a recent BCG news release indicated, “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

So it seems as though the offshore trend has slowed considerably, and there are now numerous examples of companies bringing the manufacture of products previously sent offshore back to the U.S.

The key word and concept in the above comparisons is: productivity adjusted. The U.S. is, and for the foreseeable future is expected to remain, one of the most productive countries in the world.

In fact, assuming a 10-percent annual Chinese productivity increase through 2015, Chinese workers are projected to achieve only 40 percent of the productivity level of its U.S. counterparts by that date.

So, back to the headline, is your company poised to benefit from the onshore effect? Regardless of what your answer is today, it will be a “no” by 2015 if you are not leading your company and its employees in the direction of embracing a continuous improvement mentality.

You do recall that the Chinese worker is expected to increase productivity by 10 percent a year, don’t you?

If your company is standing still, it is falling behind. Companies right here in the U.S. are looking at your business in their rearview mirrors as they pull away, powered by a relentless drive for continuous improvement.

The path to higher productivity is not free. It requires investment by your company. For many managers, investment in plants and equipment seems to come to mind first.

However, I propose that investment in your employees and your company processes will yield equal or greater results.

Speaking from personal experience, with a limited investment in capital equipment and a focus on employee skills and process improvement, one company where I worked achieved a 26-percent increase in output over a two-year period, with a near-zero increase in personnel.

If your company is not yet “world class,” it, too, has the opportunity to achieve similar results.

But it’s up to you and the leadership team at your company to create the culture and climate that promotes risk taking in a continuous improvement environment.

Assess and invest in your employees to be sure their shortcomings are known and upgrade their knowledge and skills through training.

Only then will your company and its employees be ready to benefit from the onshore effect, or to win new business away from other U.S. companies that are content with their productivity status quo.

Joe Klocko is the director of Center for Applied Competitive Technologies (CACT) hosted by College of the Canyons. Klocko’s column reflects his own views and not necessarily those of The Signal.
For more information about how the college’s CACT and Employee Training Institute can help your business, please call (661) 362-3112, email cact@canyons.edu or visit www.canyonsecondev.org. For the complete BCG report titled Made in America, again visit the BCG website at www.bcgperspectives.com.

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