One of the biggest news stories this week should give manufacturers, especially those with operations overseas, pause over the cost of doing business.
The story concerns Chip Starnes, a co-owner of Coral Springs, Florida-based Specialty Medical Supplies who was detained for nearly a week by his company’s Chinese workers at a factory on the outskirts of Beijing. While he has since been released, at issue is the reason behind his captivity and the situation that led to his release after 7 days in captivity.
When Specialty Medical Supplies decided to shut down one of its divisions and move some operations to Mumbai, India, several employees were laid off and given severance packages. When Starnes arrived in China last week to lay off the remaining employees in the closed division, he wasn’t allowed to leave. Current employees who believed the entire factory was being shut down demanded severance packages, even though they were repeatedly told they weren’t being laid off. Working with a Chinese labor official, Specialty Medical Supplies agreed to a payout to end the ordeal, even though the severance package to current employees wasn’t justified, in Starnes opinion.
This hostile act by the workers shows the growing unease the Chinese manufacturing labor force has about jobs during a time of slowing economic growth in China. As more U.S. companies talk about reshoring, the idea of relocating manufacturing operations is not lost on employees at foreign-owned factories. Workers sense that the growing costs of doing business there is making China less attractive for the manufacturing sector.
In the U.S., an organization devoted to bringing manufacturing jobs back, called the Reshoring Initiative, helps manufacturers recognize the profit potential of utilizing local sourcing and production, as well as the critical role they can play in strengthening the economy. Part of the mission involves soliciting and sharing stories of U.S. reshoring efforts and the issues companies dealt with that pushed them to that course of action.
According to the Reshoring Initiative, the top reasons for a company to reshore include:
The Initiative also offers Total Cost of Ownership Estimator software that helps companies account for all relevant factors when determining their total cost of ownership, including overhead, balance sheet, corporate strategy and other internal and external business costs.
A lot of companies have thought about reshoring. It brings jobs back to the U.S. that have been disappearing for decades due to offshoring and also helps a company keep a better handle on quality control, theft of trade secrets, supply chain disruptions and long lead times. In essence, it serves to have better control over the different company facets while staying cost competitive in the manufacturing sector.
|American Chip Starnes, co-owner of Specialty Medical Supplies looks out from a window as he is held hostage by angry workers inside his plant at the Jinyurui Science and Technology Park in Qiao Zi township of Huairou District, on the outskirts of Beijing, China Tuesday, June 25, 2013. Starnes said he's waiting for his lawyers to arrive to resolve a compensation dispute that highlights tensions in China's labor market. (AP Photo/Andy Wong)|
To further the cause of reshoring, the founder of the Reshoring Initiative, Harry Moser, was invited to participate in a day-long Insourcing Forum at the White House in January. Moser discussed the trend of reshoring and afterwards said, “Throughout the day, a common theme emerged: many American companies make sourcing decisions based on price and ignore the total cost of sourcing offshore. Increasing awareness of the total cost of ownership has been one of the Reshoring Initiativeʼs key objectives.”
The Big Question
Being held hostage at a factory until monetary demands are met is bad business for any company and something that Starnes probably thought about during his unfortunate incarceration. It sets a bad precedent for Specialty Medical Supplies’ operations, as well as for other overseas industries.
Scenarios like the one carried out in China over the last week could give companies in the U.S. the push to move production back to the U.S. or consider moving to other regions of the world. Or maybe companies would rather take their chances and hope they don’t have to deal with astonishing disputes like these. Should this be the normal cost of doing business overseas?
Has this hostage situation forced your company to consider reshoring? Email me at email@example.com or comment below.