Onshoring vs. offshoring debate

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  • Notes: Migrants’ wages have been deflated by the urban consumer price index. The data for 2012 refer to the first three quarters.Source: National Bureau of Statistics.The export sector is extremely concentrated in China’s coastal areas. Just 20 of the over 330 prefectures, accounting for only 13% of China’s total population, produced three-quarters of total exports in 2010. Enterprises in these areas rely heavily on workers who moved to these cities from other parts of the country and so the rapid rise in real wages has weighed on profit margins and slowed export growth.Indeed, growth in the top 20 exporting prefectures was nearly four percentage points lower in 2008-11 compared to their average growth rate in the seven years after WTO entry, with particularly sharp falls in 2011.
  • Notes for image on the slide:The cost of shipping a standard, 40-foot container from Asia to the U.S East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel, (Jeff Rubin, chief economist at CIBC World Markets in Toronto.)http://online.wsj.com/article/SB121331934552070357.html.htmlExamples of suppliers who are looking at rectifying this issue by onsourcing are: Ikea, Emerson, Desa.
  • Add in the table from the ONS data hereSince 2009 average nominal earnings of UK employees have remained quite flat. With ConsumerPrices Index (CPI) inflation averaging 3.7% in the 12 months to April 2010, 2011 and 2012, therewas a sharp fall in median earnings in real terms from their peak of £12.25 per hour (2012 prices)in 2009 to £11.21 per hour in 2012 – roughly the same as their real value in 2003. This may bebecause of pay freezes for people who remain in the same job or it may reflect changes in thecomposition of jobs that people do, with some high-paid jobs being cut as the economy adjustsfollowing the shock of 2008-09 and more low-paid jobs being created. The ‘average’ earningsoutcome for UK employees as
  • Onshoring vs. offshoring debate

    1. 1. "The changing balance between risk and reward willsee a rise in onshoring over offshoring"Breakfast debate15th May, The Centre Point
    2. 2. "The Changing Balance Between Risk and Reward Will Seea Rise in Onshoring Over Offshoring"Ed Ainsworth
    3. 3. Onshoring:The process of moving a businessoperation from overseas to the localcountry
    4. 4. 4Companies are thinking more about moving backproduction to Europe or the US.Note: Surveyed American Manufacturing companies, with $1 billion or more annual sales figure.Survey covered whether they are planning, or actively considering, shifting production facilitiesfrom China to America due to increasing Chinese labour costs. (2012 Survey)Production ShiftConsideration from Chinato AmericaMovedto UK12%Didn’tmove88%Manufacturers that movedoperations in past 2 yearsSource: http://news.bbc.co.uk/1/hi/8434458.stmNotconsideringshift63%Consideringshift37%
    5. 5. 5Cost of labour are rising in AsiaSource: OECD Economic Surveys CHINA – March 2013 –Overview as cited in National Bureau of StatisticsChinese Manufacturing Employee Migrant Wage Growth-5%0%5%10%15%20%25%30%2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Growth in the real wages of migrants
    6. 6. $0$2,000$4,000$6,000$8,000$10,000$12,000$14,000$16,000Shipping - Mexico Shipping - China Inland TransportAverage U.S.benchmark crude-oilprice$30 $56 $130 $150 $2006Transport costs are also risingThe cost of shipping a standard, 40-foot container from Asia to the U.S EastCoastSource: http://online.wsj.com/article/SB121331934552070357.html.html
    7. 7. 7But labour and other costs in the UK are actually fallingSource: Office for National Statistics / Work and Pensions1011121314151617182002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012£perhourLondon (workplace, 2012) London (residence, 2012) UK (2012)Median Hourly Earnings of all employees in UK and London
    8. 8. 8Within the UK• Production costs are furtherdeclining• Automating manufacturingprocess• Less labour intensive• 3D printing and robots• Availability of grants• Changing employmentregulations to become moreflexible• Spare CapacityAdditional factors that are making onshoring more attractiveAdditional benefits• Increased quality of service• Reduced Co-ordination costs• Risk of supply chain disruption• Retention of IP• Compliance• Labour Standards• Bribery• Ease of increased customisationand configuration
    9. 9. GlaxoSmithKlineIn 2013, announced investment of £500 million in a new bio-pharmamanufacturing facility - the first time in 40 years the company has builta factory on British soil.9New leadersPowergenClosed its Indian call centres, and re-opened with UK staffSantanderMove back to the UK to improve customer satisfactionAll calls are now handled with staff based in Glasgow, Leicester andLiverpool and the move had created 500 UK-based jobs.
    10. 10. 10The balance of risk and reward has changed• Increasing salaries in Asia5x increase since 2000 with an expectation to continue to grow 18% annual for theforeseeable future.• Decreasing salaries in the UKDecreased by 2.2% since 2005.(European salaries have also barely moved over the past decade).• Increasing costs of transportation• Need to protect IPCompanies do not want to offshore their intellectual capital.• Onshoring more attractive in the UKNew western regulationsBetter customer service• Need for incidental compliance, quality of service and customisation andconfiguration
    11. 11. 11Thank you
    12. 12. "The changing balance between risk and reward will notsee a rise in onshoring over offshoring"Rob Lees
    13. 13. “Offshoring and outsourcing today are like sex in the Victorianera: repressed or criticised in public discussion, muchpracticed in private behaviour.”Ben W. Heineman Jr. GEs former senior vice-president for law and public affairs.13Offshoring – It still makes sense
    14. 14. • In 2003, 40% of American and Europeanoutsourcing contracts involved offshore workers• In 2013 the number rose to 67%.• Number of employers intending to offshore UKjobs in 2013 has grown to 8 per cent, up from 6per cent in 2012.• In the USA about 663,000 large-company jobsin IT, HR, finance and purchasing have beenoffshored since 2002.• More than a third of the U.S. jobs in thoseindustries in 2002 will have moved offshore by2016.14Offshoring – It still makes senseThe Facts:Figure one: The EconomistCIPD SurveyHackett GroupEU and USA companies’ outsourcingcontracts with offshore element
    15. 15. 15Offshoring – Cheaper Labour CostsManufacturing Labour costs (USD per hour, 2000 – 2008)
    16. 16. 16Offshoring – Access to LabourUS Companies in 2011 highlight employee skill shortages per sector
    17. 17. 17Offshoring – The Apple ExampleValue Creation in the iPhoneApple (US)Basic and AppliedR&D, ProductDesign, CommercialisationARM Holding (UK)Chip DesignNXP Semiconductor(Netherlands)ChipsBalda (Germany)TouchscreenFoxConn (Taiwan)AssemblyValue added
    18. 18. 18Offshoring – The Apple ExampleFull year profit in billions ofTaiwan dollarsApple gross profit pre product inbillions
    19. 19. 19Offshoring – Making it WorkMany companies see offshoring as a quick solution to existing troubles.This is simply not the case. Offshoring a broken function will not fix it.Any offshoring activity needs to be undertaken after careful reflection of the below:Do not just consider cost when selecting a supplier•Consider all relevant factors: location, quality of labour, company culture, logistics.Analyse all relevant risks•Political instability, potential data theft, reduced employee motivation, increasedcosts as project progresses, potential of natural disasters, reliance on fewsuppliers, legal and regulatory risks.Treat supplier as an extension of your own company•Communicate, collaborate, help them reach your standards, innovate together.•Invite them to visit you and vice versa.
    20. 20. • Lower costs• Flexible Resources• Access to skilled labour• Location benefitsSavings from a co-ordinated approach can be poured back into research anddevelopment. This is the kind of competitive advantage western governments should becampaigning for, not against.However, there is a caveat:Offshoring a function does not provide a solution to an existing problem. Businessesmust treat offshore suppliers as an extension of their own brand.20Offshoring - ConclusionThe benefits of well-managed offshoring are numerous.
    21. 21. 21Thank you
    22. 22. "The changing balance between risk and reward willsee a rise in onshoring over offshoring"Breakfast debate15th May, The Centre Point
    23. 23. 4C OverviewBreakfast Debate15th May 2013
    24. 24. 24About usExperience Our TeamEstablished 2000 65+ in-housetalented specialistsReal Savings£62.6 million savedfor clients in 2012DeliveringBusiness wide costtransformation
    25. 25. 25What we do• Detailedassessment ofrealistic savings• Savings deliveryroadmap andopportunity matrix• Benchmarkdatabase• Spend analysis• Team assessment• Sustainable, long-term benefits• Talented functionalexperts• Expert supportfunctions• Bespoke tools• Tracking andmonitoring tools• Locked in savings• Managed servicesOpportunityIdentificationBenefitsDeliveryOn-going CostManagementWhat can Iachieve?Demonstratingsuccess andknowledgetransferPerformancemanagement
    26. 26. 26Client deliveryClientTargetSavings£mActualSavings£mROIOil & Gas 25.0 32.0 27.0FMCG 1.6 2.8 12.0FinancialServices1.4 2.3 4.0FinancialServices1.0 1.1 1.0FMCG 2.2 2.6 2.0Leisure 1.5 2.3 8.0Retail 8.7 9.6 23.0FinancialServices8.0 10.0 4.0TOTAL 49.4 62.6 8.3
    27. 27. 4C AssociatesThe Kensington Centre66 Hammersmith RoadLondon, W14 8UDWww.4cassociates.com

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