Sending Production Abroad: Learnings and Lessons From Japan (Part 2)

In the first post in this series, I looked at a recent Economist article examining the rise of overseas, outsourced production among Japanese manufacturers. After reading it, I found Bob Ferrari's take on the same topic, which discusses the currency challenge that Japanese companies are facing when it comes to onshore production, not to mention the broader topic of off-shoring manufacturing facilities. I think Bob and I are both in agreement that there are a plethora of lessons for global companies based on the experiences (and recent statements) of Japanese companies that have been forced by a combination of currency strength, corporate tax rates and customer locations amongst other reasons to locate production abroad.

In summarizing some of the global implications of these moves, I agree with Bob that "outsourcing decisions will continue to involve dynamic factors, and the degree of flexibility and agility of manufacturing and supply chain networks will continue to be a key consideration in supporting outsourcing needs." In the past, I believe many industrial companies have not paid enough attention to the total cost implications not only of make/buy decisions but also on the location of key suppliers within their broader supply chain. In this regard, it's precisely what is outside of a manufacturer's control (e.g., government policy, taxes, currency markets, etc.) that can wreck havoc on margins the most when it comes to global sourcing and production decisions.

Bob also suggests in his conclusion that "no country can claim to have an economic growth plan without consideration to the global competitiveness of its manufacturing and supply chain infrastructure, as Japan is unfortunately beginning to understand." Key to this observation is the importance of government and industry working more closer together to target areas of production and investment that make sense for economies based on overall -- and potential -- competitive advantage. Perhaps it will never make sense for a country like the US or Japan to produce low-end, low-margin widgets again. But just as the Chinese government has successfully micromanaged areas of production and export investment, there are lessons for all of us about the importance of linking company incentives with smart policy that maximizes economic growth, stability and employment levels.

Jason Busch

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