Distributors Fear Sales, Job Losses to China
In its 58th Annual Survey of Distributor Operations (2004), Industrial Distribution magazine said that 45% of nearly 800 distributors surveyed reported an average loss of 10% in total sales volume over the last two years due to customers moving to China. Those numbers don’t tell the whole story, however. Some distributors reported a loss of up to 30% of sales, while a full 2% reported losses totaling 40%. The survey indicates that many distributors fear that the negative effects of globalization will worsen over the next five years. In fact, 64% of respondents believe more of their customers will move to China in that time. Distributors in the northeastern United States indicated even higher levels of concern. “Manufacturing is dying out, particularly in the Northeast, due in large part to job loss to China,” notes one distributor.
To Compete, Regional Forklift Suppliers Focus on Service
Globalization has created remarkable options for end-users of forklifts, reports Frost & Sullivan’s 2004 Analysis of North American Forklift Markets. Without substantial value additions, major clients are likely to redirect their business to international suppliers that can provide a complete updated package, including service and customer relations. But mediocre customer service is expected to drive clients back, particularly in the technical advice and spare parts sectors. What does this mean for North American forklift suppliers? The analysis points to regional companies increasingly expending efforts to provide better customer relations and after-sales service in order to compete with a global market. Many small and mid-sized regional forklift suppliers also are collaborating with international companies, which offer them access to new regions, as well as financial and technical resources.
IT Budgets Increasingly Going Offshore
According to Forrester Research’s 2003 report, How Companies Govern Their IT Spending: Business Technographics Data Overview, IT executives have become more serious about governance—how firms prioritize, fund, purchase and deploy IT products and services within their organizations. One result of this is increased focus on offshoring IT services in order to improve delivery. The report says that 70% of firms currently relying on offshore providers are satisfied with the service they receive. Thus, 68% of current users intend to move even more of their IT operations offshore in the future.
Offshoring Is a Win-Win Situation
The 2003 report, Offshoring: Is it a Win-Win Game? from McKinsey Global Institute (MGI), says offshoring is expected to grow 30% to 40% through 2008, and the number of jobs offshored will grow to approximately 3.3 million by 2015. This offshore job loss translates to 200,000 jobs per year over the next decade, a number that pales in comparison to the mass layoffs the U.S. economy has sustained even during good financial times. The economy is resilient, and offshoring should have no greater effect on job numbers than any other factor, including technological change, economic recession or changes in consumer demand.
Perhaps the most powerful argument for offshoring, MGI notes, is how the cost savings for business eventually are passed on as consumer benefits. For every dollar offshored, 58 cents are captured as net cost reduction to businesses, leading to higher profitability and a stronger competitive stance in the global marketplace. Also, each offshored dollar results in offshore service providers buying an additional five cents’ worth of goods and services from the U.S. economy. One reason job-loss fears are overstated, MGI argues, is that as low value-added service is offshored, U.S. workers previously employed in providing those services are freed to take other jobs. The result is that for every dollar offshored, the economy will capture an additional 45 to 47 cents from the new jobs generated. Altogether, offshoring creates an additional 12 to 14 cents in net revenue that didn’t exist previously.
There still are real problems to be addressed in order for the U.S. to reap the most benefit from globalization. Figures from the Bureau of Labor Statistics show that 31% of workers whose jobs were displaced by trade between 1979 and 1999 were not fully reemployed—55% were at best working for 85% of their former wages, while as many as 25% saw pay cuts of 30% or more. MGI’s report supports a proposal for companies to insure all jobs displaced from offshoring, thus curtailing anxiety and helping the U.S. economy maintain the viability it needs to take fullest advantage of globalization.