Supply Chains – The Onshore Option

Supply Chains – The Onshore Option
November 11, 2020 admin
In Podcasts
Onshore or offshore supply chain decisions

Are jobs and manufacturing poised to return to the United States? What will it take?

In this Tough Things First podcast, Ray Zinn discusses the dynamics of offshoring and hurdles to balancing out the benefits other countries offer.


Rob Artigo: Rob Artigo here once again, your guest host for this edition of ‘The Tough Things First’ podcast. I’m a writer, an investigator in California being invited back, always a pleasure, Ray.

Ray Zinn: Well, thanks, Rob. It’s always good to have you on the program with me because you always had these interesting subjects and topics you want to discuss.

Rob Artigo: Thanks, Ray. So I went to Best Buy and Fry’s Electronics in just one day during the pandemic to find a radio and what I found was a lot of empty shelf space and it was actually disconcerting and bothered me because the products that I wanted were not there first of all. But a lot of products that were normally there aren’t there. And I suspect that it couldn’t only be a matter of people over shopping right now, but it was also something that went to the interruption of the supply chain. So even before the pandemic, the president was suggesting the US would pay companies in the supply chain to bring the supply chain back to the continental US. So I’m wondering in your mind, is this a feasible and noble idea for the US to want to bring the supply chain back to our continent?

Ray Zinn: Well, it’s like the stimulus package that 2 trillion or… Whatever, I can’t remember the exact number, but this is a couple of trillion dollars worth of stimulus. And so it’s not unusual for a country, whether it be the US or any other country, to offer a stimulus, to help out in a particular situation. The current stimulus, which of course, was to help families through this shutdown and through the economic recession that we had introduced by the coronavirus.

How does stuff get outsourced? In other words is let’s talk about how does products and technology get outsourced to begin with? It’s very simple. Countries like Ireland and China and Korea and Taiwan, Singapore, India, they all offer stimulus and incentives. They’ll say, okay, if you’ll bring your company or a part of your company to our country, we’ll buy you a building, you’ll pay no taxes. And that’s one of the problems that we’ve had by the way, is that we’ve not taxed companies, US companies that have gone out outsourcing outside. So we’ve not, apparently, not thought that was a bad deal, but like anything else that pendulum swings too far. And as a consequence our country suffers, employment suffers because now we’re outsourcing these jobs in this technology.

And you can get too much of a good thing as you would, and it’s not easy to bring those companies back because these other countries have offered them free buildings, free… They actually will pay 75% of an employee salary. They’ll provide all the benefits, especially in countries where you got socialism, the country pays those medical benefits, where in our country, of course you have to pay for those. So they find ways to invite other countries to come to their country to stimulate their economy. And so the US is no different. We’ve outsourced ourselves to death as you would. And so now we’re facing the problem that those countries faced only we let the pendulum swing too far, and now it’s going to be costly for us to bring those companies back.

And so to do that, we have to offer something that is of interest to them. We can increase the barriers to entry. In other words, we could increase the tariffs, like why your shelves are empty is because of the high tariffs. And so the countries just can’t afford to pay those tariffs and so they just slow down the supply chain into our country, punishing us in a way, because we won’t be able to buy those cheap products because our government has increased the tariffs on them. And it makes them make some more expensive, 15, 20, 25%, whatever it is. And they do the same thing. In France, for example, they have the car import… Foreign car import custom station way deep inside France. It takes an hour or two to get to the import station and then there’s this long… They have this queue. They only have a couple of people there and it’s this long queue to get your documents in and to get them approved so you can land your cargo.

So that’s another way countries do it, is they stop the imports coming in by making it difficult, whether it be tariffs or in the case of France where they just prevent… Make it difficult for you. Your, your ship is sitting out in the Harbor at a very high expense. You can’t land your cargo because you can’t your shipping documents approved to land your goods. And there’s all kinds of tactics that these countries use to stimulate their economy and harm your economy. So now what the US has found of course is, a boomerang. Now they’re trying to get the companies to come back and the only way they’ll get them to do that is they’re going to have to incentivize them in some fashion to compensate for the fact that the countries that they’re currently sourcing with have all the benefits that they’re going to lose.

Rob Artigo: I was going to ask you about will it take more than money to bring companies back to… And you answered that question pretty clearly is that when you have countries that can offer… That, “Hey, look, we’re paying our citizens their benefits already. So that’s an expense that you don’t have to incur.” Are there options here that… I think you alluded to one, but are there other options here that we might be able to do that would make it advantageous for the company to move, even though maybe on the back end on the… For example, the benefits in China, which is a communist country and provides for… It’s a social safety net, if you will. Come back to the United States and that company that was manufacturing in China says, look, it’s worth it to us to manufacture here, even if it’s slightly more expensive.

Ray Zinn: Well, that’s what the import expert duties are. That’s exactly what they do. They’re there to protect your country. And so there’s not very many ways that we can migrate this puzzle. They only got so many strings you can pull. So the government, like in France, they can say, okay, well, make it difficult for somebody to land their cargo here, if we don’t want that cargo to be here. And if we’d rather than buy French products and then we’ll make it difficult for countries to import their products. Years and years, this was many, many years ago, when I was in Germany with my mother, I was taking her around visiting her relatives.

She kept asking me, I don’t see many American products here. And she says, why is that? And I says, because Germany just prevents it. They stop the imports by all these regulations. And it makes it very expensive for their citizens to buy US products because the duties are high, the maintenance is high, they just find all kinds of ways to make your product more expensive and unavailable to use. And that’s the crux of it is, how do you prevent if the company won’t do it themselves, what can the country do? Well, they can just stop imports. They can just say, you can’t import this product, or you can’t export that product. And that’s the only thing that government can do is they can just make laws that will hurt or minimize the impact on their economy.

Rob Artigo: Is this, and we’ll close it out with, this part of competitive worldwide commerce, where countries are being protectionists and also wanting to have stuff manufactured off shore, if you will. Is this a sustainable way of making it work? Are we looking at a… Is this just the way it works and the way it’s always going to work?

Ray Zinn: It’s a balancing act. You don’t want to stop all cooperation between countries because you need them. We are a single world. In other words, we don’t have multiple worlds out there and so there has to be some give and take. But it has to be in both sides. In other words, you can’t have it all one way. If our country feels that they’re being threatened in some way by a manufacturer… By a country that holds as you would the cards on a particular technology, for example, antibiotics, then the country has to protect itself. And so tariffs are basically protectionistic sources or solutions that countries have all countries have some form of tariffs and duties that products have to pay depending upon how critical a product is to that country.

And I heard the term recently about technology nationalism, and I thought that was interesting. I’ve always thought that your technology should be nationalistic. In other words, that’s how you protect the jewels is if you want to make sure that you have…Retain those jewels is you have to protect your technology in some way, it’s like a patent. National protectionism is patenting. Preventing other countries from obtaining your technology.

Rob Artigo: Well, thank you Ray, for this one. And to our listeners, you can join the conversation at toughthingsfirst.com. Your questions and comments are always welcome. Follow Ray Zinn on Twitter, Facebook and LinkedIn. And of course you get the text of Ray’s books, “Tough Things First” and the “Zen of Zinn.” Thanks again, Ray.

Ray Zinn: Thank you, Rob. Appreciate you being here.

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