Offshoring Gives U.S. Employers the Profitability to Innovate

Some economists and politicians blame American companies who offshore production for a variety of economic ills including lower growth rates, higher unemployment, declining wages and a shrinking middle class. In recent months, some presidential candidates have threatened to bring offshoring to an end by establishing high tariffs and forcing American companies to produce goods at home. But is offshoring manual assembly to lower cost labor markets really a bad thing for America?

Many studies have shown that outsourcing of production has had a minimal impact on job losses and has likely added jobs.  How is that possible?

Take Apple as an example.  The company has had astonishing success with its products in the years since the introduction of the iPhone, while most of its manufacturing takes place in China.  As a global competitor, Apple makes more margin and can supply its products at more competitive prices globally than if it manufactured in America.  Importantly, Apple’s success has been a jobs win in the USA (no pun intended).  In the last decade, Apple’s domestic employment has grown four-fold to more than 50,000 people.  And many of the jobs Apple has created in the U.S. are high-paying jobs in engineering, design and management. 

Those are the kind of jobs America should strive for because it’s much more likely that they will result in a thriving middle class in a country where the cost of living greatly exceeds that of less-developed countries that are capturing the low value-added jobs.  If competitors around the globe can produce goods in Asia using $2 an hour labor, why would we fight to have American companies pay five to ten times more?  So that we can bring low-wage jobs back home?

Offshoring the lower value-added manual labor involved in product assembly helped Apple become a winner globally.  Now Apple is spending $5 billion to build a new headquarters in California, providing thousands of Californians with construction jobs and creating a facility where they will spend billions for high paying R&D jobs. Apple’s victory globally has been America’s triumph and offshore manufacturing partners have been a linchpin of their success.

When American companies generate higher profits and produce lower-priced products it’s a win-win.  They have more money to invest in product development, their market valuations (and our retirement accounts) go up, and they end up employing more people domestically – and in higher-paying jobs.  At the same time, we pay less for their products and live richer lives at a lower cost, which helps keep inflation down and our economy strong. If we were to view America as a corporation striving to beat global competitors, having China act as our manufacturing department for some types of goods pays long-term dividends.  Even if the transition away from domestic manufacturing jobs sometimes creates growing pains.

As many city leaders in America have begun to discover, the key to a thriving economy is not putting up barriers to offshoring production but propping up colleges and universities so that they develop the higher-skilled talent that innovative growth companies need. Here in Chicago, Mayor Rahm Emanuel has established partnership programs between community colleges and employers to assure that the employers will be able to find the talent they need without looking elsewhere.  

At ChicagoTronics, we are experts in low-cost offshore production. We have done it for our own products and helped others develop offshore production programs too.  Contact us to explore how we can work together to create a winning offshore production program for you.