Multinational manufacturers are often criticized for outsourcing the majority of their manufacturing to other regions. Do global electronics manufacturers owe any allegiance to support jobs in their home region?
Yes or No?
Electronics manufacturers should not feel obligated to manufacture in their home country if it does not make economic sense. I support global free trade and open competition. I disagree with any protectionist policies from governments; be they barriers to keep foreign competition, artificially altered currencies, subsidies for state-owned businesses or others. These protectionist policies create short-lived benefits at best. Instead, I agree with Adam Smith and believe the “Invisible Hand” should guide our economies.
Walmart’s commitment to buy $250 billion in products supporting American jobs by 2023 is having a tangible impact on communities across America. In the three years since we launched our initiative we’ve seen factories opened, jobs created and American products added to our shelves in stores and online. Our customers tell us that where products are made is most important second only to price. With changes in energy costs and labor costs overseas, it is increasingly cost effective and efficient to manufacture closest to the point of consumption, helping Walmart respond to trends and customer demand. It is just good business.
I believe that there is very delicate balance here. While the knee-jerk response of allegiance to jobs/economy in a home region is certainly appealing, the situation is much more complex. In the global marketplace, multi-national manufacturers have a responsibility to their customers and to their shareholders to provide the right product, to the right place, at the right time, at the most competitive price. The best-case situation occurs when the home/headquarters region can enable this vision – either naturally or whereby the home region provides incentives (training, cost relief, etc.) to support the most competitive solution. In short, for enduring success the solution must be good for the local economy and good for the multi-national manufacturer.
But… there has to be a greater realization that while the benefits of globalization and free-trade are usually widely-dispersed, the costs are concentrated on a few. Making full use of a country’s comparative advantage generally promotes aggregate growth and development, but businesses and policymakers need to ensure adequate education and training to ensure those negatively impacted by outsourcing aren’t left behind. Barring such initiatives, inequality will continue to rise and the current populist backlash will intensify.
Companies owe it to their shareholders to maintain a strong presence in their home region or, at least, their home country. By producing as much in the home market as they sell there, they at least maintain current earnings and make future earnings more sustainable. By doing the math correctly, e.g. using Total Cost of Ownership (TCO) instead of wage rates or purchase price for sourcing decisions they will see that about 25% of what they have offshored would be more profitably produced or sourced here.
Global firms are incorporated under the laws of their home country. In my view, this alone is enough to mean that firms have some responsibility to their home country. Also, the quality of life in any society depends on the quality of communities, and firms can contribute a lot by engaging in their home communities. On the other hand, the responsibility to the home community is not infinite. Global firms also need to pursue efficiency. The best firms are the ones that balance these objectives.