Bottom Line Is That Globalization

¶ … bottom line is that globalization is the new economic reality for the 21st century. Manufacturers and service providers are not necessarily chasing the lowest cost labor hour, as they are more interested in chasing talent and skill sets not easily recruited in their regions of the world. While the low-cost, commodity-like products get the most attention and anger from unions and organized labor, the majority of money being spent in this area has to do with very complex, difficult projects.

Consider for example the value chain of the global auto industry, and how the Japanese have consistently led the market with new product innovation including hybrid engines like those found in the Toyota Prius, or the continual innovation in safety engineering in German auto manufacturers (Sturgeon, Van Biesebroeck, Gereffi, 2008). There are knowledge centers emerging globally, and they vary by industry.

These knowledge centers are very attractive to companies needing expertise, and it is much more efficient to hire talent in these locations than attempt to recruit or develop it inside a company (Sturgeon, Van Biesebroeck, Gereffi, 2008). So while many unions and organized labor groups cry foul over outsourcing, in reality, this trend is protecting more jobs by giving companies a chance to compete globally by being smarter about how the built and market products.

Outsourcing Is More than Cost Reduction Value chains in businesses thrive on new intelligence and knowledge, and being able to quickly change direction based on them (Sturgeon, Van Biesebroeck, Gereffi, 2008). That is the catalyst of the greatest percentage of outsourcing today. True outsourcing is taking the most challenging problems and seeking to gain insights and intelligence from expertise in various knowledge centers of the world. There are companies who also chase the lowest labor hour get on a treadmill that is very tough to stop.

Once a business model is based purely on price it is either through exceptional innovation and a steady flood of new products, or a continual cost reduction strategy that they survive (Sturgeon, Van Biesebroeck, Gereffi, 2008). Outsourcing drops the costs of common goods, many of them commoditized and sold on price in mass merchandisers including Wal-Mart, K-Mart and Costco. The price points of these products enable cash-strapped families who are working to survive this recession a chance to make ends meet.

Yet this is just a small percentage of overall outsourcing, as billions of dollars are spent on gaining insights and intelligence from knowledge centers globally for competitive advantage (Sturgeon, Van Biesebroeck, Gereffi, 2008). The uncomfortable truth too is that the U.S. is also benefiting greatly from other countries coming to this nation to outsource their manufacturing here. In my state, California, the leading exports are civilian aircraft, which are 4.4% of all state exports (U.S. Census Bureau, 2010), electronic integrated circuits, which are 2% and parts & accessories for data processing equipment (1.9%).

Asian nations who need aircraft expertise "outsource" their projects to California because our state has the world leaders in this industry, from Boeing and Lockheed Martin to Northrop-Grumman and Teradyne. As this example illustrates, outsourcing is more about going after expertise needed, less about costs. Is.