Offshoring: Fact and Flatulence

In an effort to divert our attention from the current economic recovery, whose movement can only be observed through time-lapse photography, the latest Obama-campaign ad blasting Mitt Romney is entitled, “Firms.” While Romney sings “America the Beautiful,” the 30-second spot accuses the former Massachusetts governor of shipping jobs overseas when he was at Bain Capital. “Firms” is only the most recent version of a months-long focus on the evils of offshoring and of Romney’s guilt.

Me thinks the president doth protest with forked tongue. Last year, the federal government, which President Obama heads, doubled U.S. contracts to Russia, which provides helicopters in Afghanistan and rides to the international space station, a function formerly filled by NASA. In fact, Russian companies received $792 million in direct federal awards. According to a Bloomberg Government study of the 200 largest federal vendors, Russia was only one of 30 prime vendors based outside the U.S. The government offshoring of items like food, gas, and space travel amounted to nearly $29 billion in fiscal year 2011, 8.6 percent of the total allocated to the 200 vendors.

Offshoring is a direct result of the globalization process that began in the 1960s and has gained steam in recent decades, particularly with the advent of instantaneous worldwide communications and the expansion of free-trade agreements. The economic logic of globalization is that nations should freely trade goods and services that cost the least to produce and that reflect their special skills. The motivation to offshore an operation or process is typically to lower costs, find skilled employees, gain a foothold in new market areas, bring services and products closer to expanding markets, shorten product lifecycles, diversify the supply chain, and save shipping costs.

Surprise, today everybody offshores. The Japanese now rely on plants and suppliers in China, particularly in the city of Dalian, which ironically was Japanese–controlled territory before World War II. The Germans prefer Poland and Romania, the French depend on North African countries, and the Australians go to Indonesia. American companies offshore not only manufacturing operations but also call centers, computer programming, reading medical data like X-rays and MRIs, medical transcription, income-tax preparation, and title-searching.

For those who think offshoring is a one-way process, consider re-shoring or back-shoring. A number of companies have discovered that it’s often more complicated to control the supply chain and manufacturing quality in a foreign country. Also, some countries are lax in enforcing patent protection, customer service and technical support can suffer from language barriers and custom differences, and developing countries are experiencing rising labor costs, which in turn, diminishes the difference between American and foreign labor expense. As a result, some businesses have brought operations back to American shores or elected not to go offshore.

Is offshoring a one-way street, sucking jobs from America? Or does offshoring also create jobs in America, because we can export more goods and services to a growing middle class in countries such as China, Brazil, and India?

It’s not just recognized companies like medical-device makers Welch Allyn and ConMed that are growing through exporting? Ask Mike Wetzel at Air Innovations, a small, area manufacturer that is selling air-conditioning/humidity systems to wealthy Chinese requiring strict control of high-end wine cellars. Smart business people recognize that 95 percent of the world’s consumers live outside the U.S., a fact confirmed by a report of the federal government’s new National Export initiative.

And what of those countries that offshore to America to be closer to their American customers, what we call in-shoring? BMW, Volkswagen, Mercedes-Benz, Toyota, and Honda all have large plants in America. And, Airbus is building a new plant to employ 1,000 in Alabama. In-shored jobs now account for five percent of domestic, private-sector employment. These businesses buy nearly $2 trillion annually in goods and services from local suppliers and small businesses in the areas where they locate. The U.S. Bureau of Economic Analysis says that foreign investment in the U.S. now exceeds the value of U.S. investment overseas by more than $4-trillion.

President Obama campaigns on the premise that he will punish companies that offshore and reward those that remain on American soil. His idea that offshoring is a one-way street that sucks jobs out of the U.S. is intellectual flatulence. While it’s clearly painful to the individual who loses a job to offshoring, more opportunities open up through our pursuit of new markets and customers in other countries.

If the president is really serious about creating more jobs, he can take a number of steps to spur economic growth. First, lower the corporate tax rate so U.S. businesses can compete and have an incentive to expand here. Next, establish a zero tariff rate and reduce the oppressive regulatory climate. Most importantly, help to create a stable economic environment is which businesses can make long-term investments.

There is still heavy demand for “Made in the U.S.A.” America currently produces 21 percent of global manufactured products, while China is second with 15 percent, according to the National Association of Manufacturers. That means that manufacturing supports an estimated 17 million jobs in the U.S.

Skewering Gov. Romney over offshoring while the government does the same thing is unadulterated hypocrisy. The facts confirm that the country is better off if we focus on competing globally rather than on trying to “protect” jobs that are better performed elsewhere.

Norman Poltenson is the publisher of The Central New York Business Journal. Contact him at npoltenson@cnybj.com

In an effort to divert our attention from the current economic recovery, whose movement can only be observed through time-lapse photography, the latest Obama-campaign ad blasting Mitt Romney is entitled, “Firms.” While Romney sings “America the Beautiful,” the 30-second spot accuses the former Massachusetts governor of shipping jobs overseas when he was at Bain Capital. “Firms” is only the most recent version of a months-long focus on the evils of offshoring and of Romney’s guilt.

Me thinks the president doth protest with forked tongue. Last year, the federal government, which President Obama heads, doubled U.S. contracts to Russia, which provides helicopters in Afghanistan and rides to the international space station, a function formerly filled by NASA. In fact, Russian companies received $792 million in direct federal awards. According to a Bloomberg Government study of the 200 largest federal vendors, Russia was only one of 30 prime vendors based outside the U.S. The government offshoring of items like food, gas, and space travel amounted to nearly $29 billion in fiscal year 2011, 8.6 percent of the total allocated to the 200 vendors.

Offshoring is a direct result of the globalization process that began in the 1960s and has gained steam in recent decades, particularly with the advent of instantaneous worldwide communications and the expansion of free-trade agreements. The economic logic of globalization is that nations should freely trade goods and services that cost the least to produce and that reflect their special skills. The motivation to offshore an operation or process is typically to lower costs, find skilled employees, gain a foothold in new market areas, bring services and products closer to expanding markets, shorten product lifecycles, diversify the supply chain, and save shipping costs.

Surprise, today everybody offshores. The Japanese now rely on plants and suppliers in China, particularly in the city of Dalian, which ironically was Japanese–controlled territory before World War II. The Germans prefer Poland and Romania, the French depend on North African countries, and the Australians go to Indonesia. American companies offshore not only manufacturing operations but also call centers, computer programming, reading medical data like X-rays and MRIs, medical transcription, income-tax preparation, and title-searching.

For those who think offshoring is a one-way process, consider re-shoring or back-shoring. A number of companies have discovered that it’s often more complicated to control the supply chain and manufacturing quality in a foreign country. Also, some countries are lax in enforcing patent protection, customer service and technical support can suffer from language barriers and custom differences, and developing countries are experiencing rising labor costs, which in turn, diminishes the difference between American and foreign labor expense. As a result, some businesses have brought operations back to American shores or elected not to go offshore.

Is offshoring a one-way street, sucking jobs from America? Or does offshoring also create jobs in America, because we can export more goods and services to a growing middle class in countries such as China, Brazil, and India?

It’s not just recognized companies like medical-device makers Welch Allyn and ConMed that are growing through exporting? Ask Mike Wetzel at Air Innovations, a small, area manufacturer that is selling air-conditioning/humidity systems to wealthy Chinese requiring strict control of high-end wine cellars. Smart business people recognize that 95 percent of the world’s consumers live outside the U.S., a fact confirmed by a report of the federal government’s new National Export initiative.

And what of those countries that offshore to America to be closer to their American customers, what we call in-shoring? BMW, Volkswagen, Mercedes-Benz, Toyota, and Honda all have large plants in America. And, Airbus is building a new plant to employ 1,000 in Alabama. In-shored jobs now account for five percent of domestic, private-sector employment. These businesses buy nearly $2 trillion annually in goods and services from local suppliers and small businesses in the areas where they locate. The U.S. Bureau of Economic Analysis says that foreign investment in the U.S. now exceeds the value of U.S. investment overseas by more than $4-trillion.

President Obama campaigns on the premise that he will punish companies that offshore and reward those that remain on American soil. His idea that offshoring is a one-way street that sucks jobs out of the U.S. is intellectual flatulence. While it’s clearly painful to the individual who loses a job to offshoring, more opportunities open up through our pursuit of new markets and customers in other countries.

If the president is really serious about creating more jobs, he can take a number of steps to spur economic growth. First, lower the corporate tax rate so U.S. businesses can compete and have an incentive to expand here. Next, establish a zero tariff rate and reduce the oppressive regulatory climate. Most importantly, help to create a stable economic environment is which businesses can make long-term investments.

There is still heavy demand for “Made in the U.S.A.” America currently produces 21 percent of global manufactured products, while China is second with 15 percent, according to the National Association of Manufacturers. That means that manufacturing supports an estimated 17 million jobs in the U.S.

Skewering Gov. Romney over offshoring while the government does the same thing is unadulterated hypocrisy. The facts confirm that the country is better off if we focus on competing globally rather than on trying to “protect” jobs that are better performed elsewhere.

Norman Poltenson is the publisher of The Central New York Business Journal. Contact him at npoltenson@cnybj.com