Evaluating U.S. Manufacturing Outsourcing To China

2523 words - 10 pages

Introduction
For many years, companies in America have been outsourcing some their manufacturing operation in order to minimize the cost in their supply chain. Particularly, China has always been a major attractive outsourcing destination mainly due to low labour cost (Capgemini & Prologis 2008). Initially, it was the rapid expanding economy that made it an ideal location for outsourcing labour intensive manufacturing operations. Generally, the Government of this country has always made significant efforts to develop outsourcing facilities and logistics infrastructure that elevates its prospects of acting efficiently as an outsourcing hub. These actions, coupled with low labour cost which apparently is of high quality, is precisely what made many US firms prefer it over other outsourcing destination (Zhou 2007). However, as result of its economic growth, which consequently has had an impact on cost of doing business in the location, its attractiveness as an outsourcing destination is progressively declining. Particularly, it is the increasing cost of labour and the strengthening of the local currency (Yuan) over the US dollar that are presenting these challenges. Similarly, according to BCG, report some US states are proving to be more attractive due to their low manufacturing costs (Supply Chain Digest 2011).
Benefits of Off-shore sourcing to China
Offshore outsourcing is commonly used as synonymous of Global outsourcing. It can be simply defined as the shifting of certain manufacturing operations to different countries for various purposes including; reducing production cost, increasing manufacturing efficiency, and/or adequately serving a targeted market, just to mention a few (Mohuddin, Su & Su 2010). According to study conducted by Bronfenbrenner & Luce (2004), most firms in the US outsource their production operation to mainly offshore destinations such as China and India, and near-shore destinations in the Latin America, particularly Mexico. Offshore outsourcing to China has been a global phenomenon. The country has not only attracted US firms, but evidence points out it has also attracted firms from Europe, Australia, Canada and those in the nearby Asian countries. Firms in its counterpart Asian countries will outsource their operation in this country for different reasons as those in the US. On the other hand, European, Canadian, and Australian firms outsource their manufacturing operation for the same reasons as those in the US (Bronfenbrenner & Luce 2004).
Already authoritative studies have categorically pointed out that offshore outsourcing contributes significantly towards increasing market value. It benefits the firms outsourcing its operation, as well as its customers. To the firm, it adds value by enabling production at lower cost while at same time supporting performance improvement. Consequently, the customers or end-users get to enjoy high quality products at relatively cheaper cost (Mohuddin, Su & Su 2010). Specifically,...

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