February 19, 2013 By Robert Bell
If you lived in America in 1992, you will recognize the following words, unless you happened to be living under a rock: “The Giant Sucking Sound.”
That is the colorful phrase used by presidential candidate Ross Perot to predict the impact of the North American Free Trade Agreement, as good-paying American jobs would be sucked away to the low-cost outsourcing destination of Mexico.
Mr. Perot had a gift for making phrases, if not for politics. The Giant Sucking Sound came to stand for two decades of concern about the offshoring and outsourcing of employment from high-cost zones like the US, Canada and Europe to low-cost zones from Mexico and Eastern Europe to China and Vietnam. The Onion, a satirical Web site, mocked these fears with a recent report that American parents are outsourcing child care to India and Sri Lanka, using cardboard boxes to ship their offspring across the seas.
Offshoring and outsourcing had devastating impacts on many communities in the Nineties. But the Giant Sucking Sound has grown a lot quieter in the new century. For one thing, at least in the US, most of the manufacturing that could be outsourced already has. And services are not moving offshore as fast as feared. According to the Hacket Group, big American and European companies are likely to lose a net 2 million business services jobs to outsourcing between 2002 and 2015. To put that in perspective, the total workforce of the US and the European Union combined exceeds 360 million people.
Offshoring and outsourcing were driven by two things: the low wages paid to workers in developing nations compared with their rich-world counterparts, and the information and communications (ICT) revolution, which made it possible to knit together global operations and deploy knowledge work anywhere. So, what changed? Wages in the world’s offshoring hotspots have grown explosively, as labor markets do what they do best: adjust to demand. So the cost advantage of hiring Chinese assembly line workers or Indian IT experts is much less than it was.
But business executives also learned from experience the downside of turning vital parts of their operations over to other companies or running manufacturing facilities on the far side of the world. Handing off key industrial processes and IT systems to another company risks creating a competitor. Shipping long distances is slow and costly, and sharply limits a company’s ability to adapt to market changes. Doing your engineering and design in one location and your manufacturing in another can save money in the short term – but it robs engineers of expertise in manufacturing, which can wind up costing a lot more money long-term.
The result of this learning curve can now be seen in the headlines. In 2012, General Electric moved manufacturing of home appliances from China to a factory in Kentucky. Google has decided to make its media-streaming appliance, Nexus Q, in San Jose. Lenovo, a Chinese technology company, will shortly open a new assembly line for personal computers in Whitsett, North Carolina. Europe has yet to see a surge in “reshoring,” as it is called, but the recession has loosened some labor markets and reduced labor costs, and it could soon happen there as well.
It turns out that being close to your customers, and ensuring that your key people stay close to what the company does, has enduring value. Location matters. Community matters, even in a global market. As communities in the industrialized nations fight for a better future, the Giant Sucking Sound is one less thing to worry about.
Note: I am indebted for the facts behind this post to a terrific special report, “Here, There and Everywhere,” in the January 19 issue of The Economist.
About the Intelligent Community Forum
The Intelligent Community Forum is a think tank that studies the economic and social development of the 21st Century community. Whether in industrialized or developing nations, communities are challenged to create prosperity, stability and cultural meaning in a world where jobs, investment and knowledge increasingly depend on advances in communications. For the 21st Century community, connectivity is a double-edge sword: threatening established ways of life on the one hand, and offering powerful new tools to build prosperous, inclusive and sustainable economies on the other. ICF seeks to share the best practices of the world's Intelligent Communities in adapting to the demands of the Broadband Economy, in order to help communities everywhere find sustainable renewal and growth. More information can be found at www.intelligentcommunity.org.
Robert Bell is co-founder of the Intelligent Community Forum, where he heads its research and content development activities. He is the author of ICF's pioneering study, Benchmarking the Intelligent Community, the annual Top Seven Intelligent Communities of the Year white papers and other research reports issued by the Forum, and of Broadband Economies: Creating the Community of the 21st Century. Mr. Bell has also authored articles in The Municipal Journal of Telecommunications Policy, IEDC Journal, Telecommunications, Asia-Pacific Satellite and Asian Communications; and has appeared in segments of ABC World News and The Discovery Channel. A frequent keynote speaker and moderator at municipal and telecom industry events, he has also led economic development missions and study tours to cities in Asia and the US.
ICF co-founder John G. Jung originated the Intelligent Community concept and continues to serve as the Forum's leading visionary. Formerly President and CEO of the Greater Toronto Marketing Alliance and Calgary Economic Development Authority, he is a registered professional urban planner, urban designer and economic developer. He leads regular international business missions to US, European, Asian, Indian and Australian cities, and originated the ICF Immersion Lab program. John is a regular speaker at universities and conferences and serves as an advisor to regional and national leaders on Intelligent Community development. The author of numerous articles in planning and economic development journals, he has received global and Toronto-based awards for his work in collaboration and strategic development and sits on numerous task forces and international advisory boards.
ICF co-founder Louis Zacharilla is the creator and presenter of the annual Smart21, Top Seven and Intelligent Community Awards and oversees ICF's media communications and development programs. He is a frequent keynote and motivational speaker and panelist, addressing audiences of tech, academic and community leaders around the world, and writes extensively for publications including American City & County, Continental Airline's in-flight magazine and Municipal World. His frequent appearances in the electronic media have included both television and radio in South Korea, China and Canada. He has served as an adjunct professor at Fordham University in New York and is a Guest Lecturer at Polytechnic University's Distinguished Speaker Series. He holds a Masters Degree from the University of Notre Dame.