June 24, 2005
The McKinsey Global Institute just published a study of how both Germany and France have suffered, compared with the United States, by trying to put up walls against outsourcing and offshoring. It noted:
- A new competitive dynamic is emerging; early movers in offshoring improve their cost position and boost their market share, creating new jobs in the process.
- Companies who resist the trend will see increasingly unfavorable cost positions that erode market share and eventually end in job destruction.
- This is why adopting protectionist policies to stop companies from offshoring would be a mistake.
Offshoring is a powerful way for companies to reduce their costs and improve the quality and kinds of products they offer consumers, allowing them to invest in the next generation of technology and create the jobs of tomorrow, say the authors.
That is why the Central American Free Trade Agreement (Cafta) is critical for enabling U.S. and Central American textile firms to compete with China, says the New York Times' Thomas Friedman:
- U.S. firms specialize in the more sophisticated work of making dyes, designing patterns and manufacturing specialized yarns, threads and fabrics, and the Cafta countries specialize in the labor-intensive sewing.
- Because the Cafta countries are right next door, U.S. retailers can respond quickly to changes in the marketplace, which far-off Chinese factories cannot do as easily.
That's also why, explains Deputy Secretary of State Robert Zoellick, that a shirt that says "Made in Honduras" might contain 60 percent U.S. content, while a similar shirt that says "Made in China" most likely would have none.
Finally, there is geopolitics. We now have a chance to help consolidate these fragile democracies by locking in a trading relationship with the United States that is critical for their development. Shame on us if we balk, says Friedman.
Source: Thomas L. Friedman, "We Are All French Now?" New York Times, June 24, 2005; based upon: Diana Farrell et al., "The Emerging Global Labor Market," McKinsey Global Institute, June 2005.
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