Is the tide turning – the arrival of reshoring for manufacturing – are knowledge industries next?

Posted on : 19-10-2011 | By : richard.gale | In : General News

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Outsourcing and Offshoring

 Outsourcing or letting other firms run parts of your business that are peripheral  to allow you to concentrate on your core business has been around for a long time. Most large scale manufacturers have clusters of firms surrounding them to supply components. This has more recently spread to knowledge led industries where businesses have taken to the concept with great enthusiasm outsourcing IT, back-office, accounting, HR and many other functions.

As outsourcing became more sophisticated the idea of off-shoring took hold. Improvements in communication/networking links combined with the rise of highly educated and cheap people allowed firms to hive large sections of their organisations to  off-shore companies for considerably reduced costs. Some larger organisations have gone a stage further and built wholly owned off-shore organisations or ‘captives’ to take advantage of labour cost differentials.

This model has developed over time and is often the first on the agenda when analysts & consultancies are called into assess an organisation’s future state.

Changing Climate

 The success of off-shoring had some interesting implications – offshore resources with in demand sector/product expertise often play ‘musical companies’ which is causing wage inflation in certain areas such as  India. Some companies now are locating to different areas in the offshore countries to try to retain and grow the workforce. Additional benefits are being offered to help reduce the churn of people. These factors point to an overheating of demand vs. supply in certain countries.

In manufacturing the same is true even with further influxes of resources from the countryside the labour costs in large Chinese cities are rising fast. In addition the increase in wealth and growth of the middle classes means that more of the population is spending more time in education with the view to work in white-collar industries potentially outside of China.

Reshoring

In the U.S. it has been reported that rising numbers of firms are repatriating their manufacturing capabilities back home. There are many reasons for this but a major focus is that the cost differential between the U.S. and, say, China has disappeared. China labour costs have gone up but also the efficiency of manufacturing in the States has also risen. Previously it may have taken 3 people  at $200 per day to build an industrial oven in the States and 10 people at $50 p/d in China. Now with improved technology and manufacturing processes then the U.S. team would only need 1-2 people.

A side benefit of this is that the core market for U.S. companies is the U.S. and putting a badge ‘Made in the U.S.A’ sells more product – especially in the retail area.  Even in Switzerland where the white-goods manufacturer ZUG has started labelling its’ products ‘Swiss Made’ and seen a 12% increase in sales to Germany and other countries.

Although this trend could be seen as a trickle, the dimensions have changed, and it would be easy to see this growing over the next few years.

So the question for us is will it be applicable to the knowledge industries? As mentioned in last month’s blog there are improvements to technology and process to allow a more disparate workforce to work from home or wherever – this reduces overall costs, allows flexible working to a larger resource pool. Also in parallel to this customer satisfaction of having a ‘Located in Your Country’ sticker on a company’s call-centre is not to be underestimated. Whether it turns into a major trend is yet to be seen but a number of factors will guide it:

  1. Niche or commodity – already some banks are pulling their call centres back to their homelands and they have never been off-shored for the ‘premium’ clients so a local presence is seen as a strong marketing tool – if technology plus rising international costs make this more attractive then it will only continue to grow from certain niche to more generic actitivies.
  2. One question mark is – can the US/EU ‘re-tool’ in these skills – do we have the capability or desire to do this? As the recession bites and unemployment grows this is likely to get Governments interested in the problem and solution and so help with education, motivation and subsidy.
  3. As China and India grow then the off-shore costs will rise. Also with the growth of the wealthy classes in these countries then demand will start to come from within reducing further capability to external companies. Other off-shore countries are on the rise such as Vietnam & Brasil and also the African continent is seen as a long term potential growth area and the Chinese are spending a great deal of time and money working with African states.

So the offshore winds that the UK and other countries have been experiencing may be changing direction. Of course the picture is more complex than this and the countries/organisations will also change to counter the change in climate.

We think the sourcing mix will continue to change and develop with multiple financial, regulatory, client  and political factors deciding outcomes. Reshoring is another area to be considered in this debate and we are watching it with interest.

High Performing Teams – Preparing for the “Long Haul”

Posted on : 19-10-2011 | By : john.vincent | In : General News

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This month Broadgate Consultants sponsored a car in the Britcar24 race at Silverstone.  Beforehand we knew little about the event but at the very least it seemed a good opportunity to support Adam, one of our associates in the Scuderia Vittoria team.  So we went ahead and with 10 days to go we had a quick look at the logistics and sorted out the admin.  Then back to work…

On the Friday qualifying we enquired how preparation was going.  Adam said it was going well, currently 31st on the grid and 7th in class, although a fire somewhere in the exhaust system was a bit of a set back !  I’m not a car enthusiast, but even to a novice that sounded bad.  Anyway, a new one was fitted ( along with a replacement bumper ) and after night qualifying we retained our overall position.

The race started was due to start at 4:30pm on the Saturday, so we headed up to take in the day’s activities, again not really knowing what to expect.  When we arrived we went to the garage and met the drivers and support team.  A few things struck me immediately.

Firstly, it looked very busy with the car still undergoing extensive tuning and race preparation.  The race planning and strategy had already been developed from the previous days testing, so it was really just about getting the final details correct.  Our car was a Porsche 996 GT3 and Adam ran us through the spec, including some positives compared to the competition, which had faster cars and were positioned further up the grid.

“It doesn’t actually really matter where we are now, it’s where we are this time tomorrow” ( obvious perhaps, but it hadn’t been until then ).

Secondly, the level of teamwork, commitment and endurance required to run any car, let alone a performance one, for a solidly for 24 hours was both impressive and daunting.  Adam explained that every car would likely spend an amount of time off the track dealing with technical problems of some kind.  It was how the team prepared and reacted to the situation that would determine the final outcome.  It was clear that finishing in itself would be a huge success !

These themes are naturally easy to relate to business.  We often see organisations with seemingly faster acceleration that are “quicker off the line” but don’t always come out on top.  In previous economic climates this might have been less obvious as once the race was underway the finish line could just be moved to suit the participants.  Not so now.

Also, in high performing teams the short-term view that may have existed ( driven largely by yearly compensation ) has given way to 1) building long-term capability and 2) delivering sustainable business value.  Looking at return on investment on more of a strategic basis can be difficult to internally sell against the economic backdrop, but it is sensible ( see last month’s blog on Technology Investment ).

Characteristics of High Performing Teams

  • Communication ( Common Goals + Openness + Inclusion )
  • Collectiveness ( Content Intimacy + Empowered Decision Making + Creativity )
  • Contribution ( Flexible Leadership + Personal Growth + Individual Self Esteem )
  • Interaction ( Trust + Respect + Constructive Conflict )

Back to the race….after a quick walk round the grid the race started and we made great progress through the field.  Up from 31st to 19th in the first couple of hours.  Then we had a driveshaft failure and the team went to work.  Now, at my garage I’m sure there would have been copious amounts of breathing in followed by “…it’ll be ready a week Wednesday” ( and of course accompanied by a lightening of the wallet ).  However, we were back on the road and amazingly lost only 9 places.  A brilliant effort under pressure.

We returned home in the evening with the car still running well.  Overnight there was an issue with the brakes ( not good at those speeds ) which was again resolved.  We monitored the race throughout Sunday with updates both via Twitter and from our onsite representative.  At 4:30pm we crossed the line having completed the 24 hours successfully overall in 17th place ( 6th in class ).  A great result.

It was great to see a high performing team working towards a “collective self interest” in order to achieve a long term goal.  Speaking afterwards with Adam there was a recognition within the team of both what went well in preparation and the lessons learnt for future races.  I’m sure next year even more successful.