While the US economy has continued to recover, the cost of labor in the United States has remained high and there’s been a shortage of workers in various sectors including manufacturing, IT and accounting.
In response, a variety of businesses have begun looking to China and other foreign countries for low-cost labor that’s more available and able to meet their needs. The question remains, what are the reasons behind these decisions? What are some of the things they’re considering when deciding where to place their manufacturing operations?
Production has shifted to overseas countries due to the rising costs of labor and production. Labor costs have become a much larger portion of the cost of producing goods and services, which is causing companies to move to where labor is cheaper.
Global Supply Chain Management
Global supply chain management (GSCM) is an umbrella term that refers to a range of methods used to coordinate the flow of goods across space and time in order to improve the value of products and services.
GSCM can be defined as the practice of developing and implementing strategies and organizational processes that enable global coordination and cooperation of operations and functions across all the stages of the supply chain.
These stages include: procurement, production, manufacturing, distribution, inventory control, marketing, sales, and customer support. It is a concept that aims to minimize the cost of distribution and maximize the overall efficiency of the supply chain.
The objective of GSCM is to improve the quality, speed, and flexibility of service delivery to customers by reducing the costs associated with delivering.
According to the U.S. Bureau of Labor Statistics, the global supply chain management industry is expected to experience a 16% growth from 2014 to 2024. There are many careers in supply chain management. From transportation and distribution, to procurement, manufacturing, and warehousing, there is something for everyone in this field.
Manufacturing Costs: Reason for
One of the most effective ways to cut manufacturing costs is to move production to another country, which is exactly what China did to become a major manufacturing powerhouse. With the shift of manufacturing and production to other countries such as China and India, the U.S. economy lost nearly 2 million jobs as of 2009. This trend continued through 2013.
Manufacturing costs are driving the manufacturing of consumer products offshore and not back to America. American manufacturers have to compete globally with manufacturers in countries like China, which have low wages and high demand for products.
Lower wages in China allowed manufacturers to build factories there while paying low salaries. And shipping rates have decreased as a result of better infrastructure and increased global trade. Today, there are many countries besides China where labor is cheaper than in the U.S., including Mexico, Indonesia, Vietnam, India, and Brazil.
Labor Cost
The cost of labor was the primary reason for production being shifted to foreign countries. Production in the U.S. could not compete with the low costs of labor.
To get the lowest cost, the biggest cost reduction comes from the labor. Because of this, factories are shifting their production to countries where there are lower labor costs. Because labor cost is a major factor in determining the price of a product, factories are choosing countries like China and India.
In fact, the United States is losing its manufacturing position because of the high labor costs. The number of American jobs lost to foreign outsourcing over the last decade has been over 1 million. So the next time you consider buying something made in China, make sure to check the label for a “Made in the U.S.A.” label.
