Global Outsourcing– Deal With It

Just a blip on the news radar screen–another plant closing. This one an auto parts manufacturing plant owned by the Bosch Corporation in St. Joseph, MI. The closing will put about 500 people out of work. The parts will now be made in Asia. A spokesperson for Bosch called the decision a pricing issue, noting that its OEM customers continue to be unrelenting on cost cutting, demanding more and more. A worker walking out of the plant after his shift expressed disgust: “Nothing’s made here anymore.”

We’ve heard these stories countless times now, in Canada as well as the U.S. The alarm signals they set off are, (1) what, if anything can be done about it, and, if not, (2), what are the consequences for our jobs, economy and standard of living?

First, the “bad” news. There is no magic wand that a government, company or union can wave to make global sourcing go away. The extent to which companies will scan the world seeking the lowest cost way to manufacture goods, is demonstrated by the new Chevrolet SUV, the Equinox. The vehicle is assembled at the GM-Suzuki CAMI plant in Ingersoll, ON from a global smorgasbord of parts. These include radios and fan motors made in Mexico, wiring harnesses made in the Philippines, transmissions made in Japan, as well as a host of components, such as seating, tires and gas tanks made in Canada and the U.S. But here is where CAMI is pushing the envelope on global sourcing–the SUV’s V-6 engine is built by Shangai GM in China! Each week 3,200 engines are loaded onto a freighter and shipped across the Pacific Ocean, arriving in Vancouver 25 days later. It takes another week for the engines to arrive by rail in Toronto, where they are unpacked and trucked to a warehouse near the CAMI site.

Global sourcing is a result of freer trade spawned by a world that is increasingly interconnected, both economically and politically. More important, despite the periodic panic generated by another plant closing, there is no strong consensus at any level to put the kibosh on global sourcing. There are too many benefits.

Certainly manufacturing jobs have been lost as a result of out-sourcing, but it’s not just a one-way street. Japanese and European companies have built major manufacturing facilities in North America. Closer to home, IBM outsourced 3,000 IT jobs but also announced it is hiring 4,500 new workers in the U.S. and Canada. IT employment has grown massively in North America, even though most of the computers and other electronic gizmos are made off-shore.

One study showed that shifting IT production around the globe added $230-billion to the economic output of the United States from 1995 to 2002. As the hardware costs less to make off-shore, companies can spend more money to hire workers at home to design, build and market better products and services. Outsourcing allows consumers to benefit from lower prices, investors from better returns and company owners from fatter profits, noted a recent Globe and Mail editorial.

This is small comfort for a person who has lost his $20-an-hour job and is now working at Wal-Mart for less than half the pay; or for the supplier who has lost a contract to an off-shore company with one-tenth the overhead. I am sympathetic but also realistic. To survive in this environment, North American manufacturers have to be flexible, lean and court alliances, and workers need to acquire new skills. Wish as some of us may, we cannot put the genie of global sourcing back in the bottle.

Michael LeGault, editor

e-mail: mlegault@canplastics.com