Is the offshore outsourcing landscape for US manufacturers migrating away from China?

Abstract

PurposeThe motivation for this study is triggered by the fact that lately contract manufacturers in China have to deal with a number of unprecedented cost pressures such as currency fluctuations, the VAT rebate reduction, and minimum wage enforcement. As cost pressures in China continue to mount, this paper aims to analyze whether the US manufacturing outsourcing pendulum is swinging away from China and back to nearby Mexico, or towards emerging low‐cost countries such as Vietnam, Indonesia, South Africa, Turkey or Argentina.Design/methodology/approachAnalysis consists of comparing major cost drivers such as labor, currency, freight, and raw material and determined per unit price and the potential impact of currency fluctuations over the next five years. An example of Easle Pads (paper‐based non‐adhesive coated) is used to present the detailed analysis.FindingsThe outsourcing landscape today may change again in the near future as the VAT rebate is further reduced or eliminated or the impact of the Olympic Games finish. Assumptions will need to be updated to reflect any changes in the future. Though other countries such as Vietnam appear to be viable options, managers will need to take other factors into consideration when making outsourcing decisions. They will need to identify specific suppliers in a country and obtain quotes in order to finalize their decision.Research limitationsThe data analysis is supposedly very high‐level. Many assumptions were applied lacking full detail, and duties and customs were not specifically addressed for each country. However, this organized approach is useful as a strategic decision tool in performing supplier searches to identify potential countries.Practical implicationsThe paper helps shed light on the opportunities that exist in the emerging low‐cost countries such as Vietnam and Indonesia. Other countries, such as Turkey and Argentina, also offer low labor costs, but may be better considered as regional sources of supply, rather than US outsourcing destinations.Originality/valueThe majority of studies on manufacturing outsourcing in relation to China concentrate on the reasons why one should choose China. The paper looks at manufacturing outsourcing away from China and identifies possible alternatives for contract manufacturing.