Obama rekindles insource/outsource debate

09 Jun

U.S. President Barak Obama said in his State of the Union address last year: “Over half of big [U.S.] manufacturers say they’re thinking of insourcing jobs from abroad.”

That announcement rekindled the debate between the champions of insourcing and outsourcing. It grows noisier still, especially in the United States where the world looks for trends in human resources and employment.
Insourcing, logically, assigns tasks or functions to the company’s own paid staff. It can mean hiring new resources to expand an existing capability, or to introduce a new component to the company’s repertoire.
It can also entail hiring experts who, while for all intents and purposes, are full time resources within an organisation, are nonetheless recruited, employed, paid and supported by an external supplier.

AUSTRALIA FOLLOWS U.S. TRENDS
Australia largely follows the U.S. in its employment and recruitment trends. As technology continues to grow in sophistication, manufacturing in particular will specialise even further. What does that mean for this country?
It’s probable that with the rapid growth of computer-aided manufacturing (CAM) —watch out for the term protoduction — insourcing of highly skilled IT specialists will be the way of the future.

INSOURCING v OUTSOURCING
Let’s return to the worldwide shirt-front between insourcing and outsourcing.
U.S. labour studies activist and observer, Roger Bybee wrote in Dissent magazine less than a year ago that since 1979, the U.S. has lost half its once mighty manufacturing base.
Put more starkly, he quantified it at the loss of 5.7 million factory jobs between 1998 and 2012. He went on to claim that 32 percent of manufacturing employment has disappeared since 2000, most it outsourced to foreign low cost, low wage countries.
The Wall Street Journal’s David Wessel also reported figures from the U.S. Commerce Department showing that U.S. companies slashed their domestic work forces by 2.9 million in the first decade of the new millennium. At the same time they exported 2.9 million jobs.

DISTURBING STATISTICS
When you consider that at its peak in 1979, American manufacturing employed 19.6 million people, these are disturbing statistics.
President Barak Obama continues to beat the drum for a review, if not a reversal, of the off-shoring deluge that swept American industry from the 1980s.
Bybee accuses Obama of ‘wishful thinking’ in his optimistic support for insourcing. He says that while reports of rising wages and costs in China may tempt some U.S. firms to reconsider their outsourced options, few will repatriate. Instead, they’ll shift their operations to other emerging low cost, low wage countries elsewhere in Asia. 

INSOURCING BOOM QUESTIONED
The debate was fuelled in part by a late 2012 report in the prestigious journal The Atlantic Monthly headlining a so-called ‘insourcing boom’. The story rests on the decline and partial recovery of General Electric’s fabled Appliance Park in Louisville Kentucky.
The site was big enough to have its own ZIP code and traffic lights in its car park. At its peak in 1973, it employed 23,000 people. By 2011, employee numbers had plunged to just 1,863.
Through a combination of higher wage costs and falling quality standards in China, rising shipping costs and delays, improved technology, cheaper and more abundant energy and lower union wage demands at home, GE is back on the insourcing trail.
Its CEO, Jeffrey Immelt, who failed to sell the site in 2008, wrote four years later in the Harvard Business Review that outsourcing is ‘quickly becoming mostly out-dated as a business model for GE Appliances.’
Is Obama right or wrong? Roger Bybee believes the available evidence is flimsy at best in a pre-election year for an administration desperate for a light at the end of the GFC tunnel.
Can manufacturing meet the needs of increasingly sophisticated and demanding consumers? They understand that digital production can soon deliver near-prototypes on a large scale. To meet the challenge, insourced IT specialisation may be the only way to go.
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Corporate Information Systems (CIS) is a specialist IT solutions provider of managed resources programs, IT contract and consulting services and executive search and selection services.