Offshoring And Us Small Manufacturers

Offshoring, also known as offshore outsourcing, is the term now being used to describe a practice among companies located in the United States of contracting with businesses beyond U.S. borders to perform services that would otherwise have been provided by in-house employees in white-collar occupations. The term is equally applicable to U.S. firms offshoring the jobs of blue-collar workers on textile and auto assembly lines, for example, which has been taking place for decades. The extension of offshoring from U.S. manufacturers to service providers has heightened public policy concerns about the extent of job loss and foregone employment opportunities among U.S. workers. This concern is especially pertinent to policymakers because of a national unemployment rate persistently exceeding 9 per cent despite the end of the latest recession. This book discusses the impacts of offshoring on jobs and small U.S. manufacturers.

A follow-up to Tim Hutzel's previous book, Keeping Your Business in the USA: Profit Globally While Operating Locally, this book tells the stories of companies that have sent their jobs outside of the USA and the negative effects this had on the quality of their products and services, employees, supply chain providers, and consumers. Bringing Jobs Back to the USA: Rebuilding America's Manufacturing Through Reshoring reveals the motivation these companies had to offshore their jobs as well as the errors of omission they made by not understanding the true cost of offshoring. Exposing the true cost of offshoring to US organizations and citizens, it supplies concrete suggestions to help government officials and activists prevent offshoring and incentivize reshoring. The book provides food for thought for businesses currently thinking about sending US jobs to foreign countries. Outlining a roadmap for reshoring using a step-by-step methodology, it provides business leaders with the understanding to make the right decisions regarding reshoring their products back to America.

The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth -- a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in input cost and import price indexes. Although cost savings are a primary driver of the shift in sourcing to foreign suppliers, the price declines associated with offshoring are not systematically observed; this is the essence of the measurement problem. To gauge the magnitude of these discounts, we draw on a variety of evidence from import price microdata from the Bureau of Labor Statistics, industry case studies, and the business press. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.

U.S. manufacturing is in the midst of a potential resurgence. Since February 2010, manufacturers have added 877,000 jobs" the sectors first sustained job growth since the 1990s. Americas 230,000 small manufacturing firms have played a key role in this resurgence, adding the majority of new manufacturing jobs every year, while forming the backbone of U.S. supply chains. Dense networks of these small manufacturers are vital to the process of taking a product from concept to market, and the exchange of manufacturing know-how across suppliers is essential for the diffusion of the new technologies and innovative processes that give U.S. manufacturing its cutting edge. However, these networks are under stress. From 2000 to 2010, manufacturing output and investment stagnated as companies offshored production previously done domestically. The U.S. supplier base weakened, raising doubts about the future of manufacturing's contribution to American innovation. Small manufacturers then and now face steep barriers to innovation - from invention, to commercialization, to the diffusion of new technology. For example, small manufacturers contribute less than one-third of all manufacturing R&D, despite making up 98 percent of manufacturing firms and as a general rule, small firms are one-seventh as likely as large firms to conduct R&D. As a result, small manufacturers are often in the positon of having to adopt technologies invented by others. Small manufacturers also face unique barriers in accessing the capital and expertise to take on the risk of new technologies. In part because of the challenges they face in adopting new technologies and processes, small manufacturers are only 60 percent as productive as large manufacturers. Strengthening America's supply chains and the small manufacturers at their core is essential to the long-term competitiveness of U.S. manufacturers both large and small. Manufacturers spend on average 60 percent of the price of their final product on purchased inputs, so differences in the quality and nimbleness of their supply chains can make or break a manufacturer's ability to compete.

A follow-up to Tim Hutzel's previous book, Keeping Your Business in the USA: Profit Globally While Operating Locally, this book tells the stories of companies that have sent their jobs outside of the USA and the negative effects this had on the quality of their products and services, employees, supply chain providers, and consumers.Bringing Jobs Ba

This paper estimates the effects of offshoring on productivity in U.S. manufacturing industries between 1992 and 2000, using instrumental variables estimation to address the potential endogeneity of offshoring. It finds that service offshoring has a significant positive effect on productivity in the US, accounting for around 11 percent of productivity growth during this period. Offshoring material inputs also has a positive effect on productivity, but the magnitude is smaller accounting for approximately 5 percent of productivity growth. There is a small negative effect of less than half a percent on employment when industries are finely disaggregated (450 manufacturing industries). However, this affect disappears at more aggregate industry level of 96 industries indicating that there is sufficient growth in demand in other industries within these broadly defined classifications to offset any negative effects.

The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth -- a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers generally are not captured in input cost and import price indexes. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.