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important, factor was language. Many Japanese companies were accustomed to trading
and producing in the USA. The English language is the first foreign language for most
Japanese business people. Drawings of products and processes, for example, together
with instruction sheets, computer programs and so on, were often immediately avail-
able for use without further translation for the UK. This means a lower risk of misun-
derstandings and mistranslation, thus smoothing communications between the new
location and its Japanese head office.

‘Offshoring’ and ‘re-shoring’ 9
Over the last two or three decades ‘offshoring’ has been one of the major phenom-
ena of global operations strategy. Firms that were once seen as firmly located in their
home markets have ‘offshored’ at least some of their activities to other locations.
Lower labour costs were almost always the chief motivation for offshoring. Operat-
ing capacity was shut down in the USA and Europe and new factories were opened
in China, Mexico, Taiwan and Vietnam – in fact, wherever costs were low and capa-
bilities adequate. And, although the anxiety over lost jobs in the rich world caused
some opposition, the economic benefits of offshoring have been huge. Workers in
low-cost countries have gained jobs and secured rising standards of living. Rich-world
companies gained lower labour costs and higher profits. Customers secured access to
products at far lower prices than if production had stayed at home. Later, increasing
numbers of service jobs followed as firms exploited the internet to offshore IT devel-
opment and back-office work to places such as India and the Philippines. Business
process outsourcers (BPOs), such as India’s Wipro and Tata, grew dramatically on the
back of this trend.
But is the offshoring trend now going into reverse? Some see signs that it may be.
For example, after decades of decline a new production line making laptop computers
opened up in Whitsett, North Carolina. And which company was it that chose the
USA rather than China, where almost all such products are made? It was one of the
world’s largest PC makers, Lenovo – the successful Chinese technology group. Nor is
Lenovo alone. Jeff Immelt, the CEO of General Electric (GE), calls outsourcing ‘yester-
day’s model’ and has returned the production of some of its domestic appliances from
China back to Kentucky. This so-called ‘re-shoring’ is not confined to manufacturing.
GE has also moved back much of its IT development work from abroad to a new centre
in Michigan. (Ironically GE was one of the earliest and most enthusiastic offshoring
companies, starting back in the 1980s.)
So what has prompted re-shoring to seemingly ‘high-cost’ locations? Some observ-
ers argue that firms that once were enthusiastic offshorers now have realised the
hidden costs and impact on revenue of moving activities a long way from home.
Partly, it is the cost equation that has changed. For example, wages in many Chinese
factories are increasing by around 20 per cent a year – faster than their productiv-
ity is growing. Added to this is a stronger Chinese currency that has closed the gap
between Chinese and Western labour costs. And, anyway, labour costs are account-
ing for a smaller proportion of total manufacturing costs as processes become more
automated. Of course, there are still regions where labour costs are significantly
below those in Western economies. For some types of job, countries such as Vietnam
and Bangladesh can still provide low-cost labour. However, they struggle to emulate
China’s broad yet large-scale supply base. Nor is distance between offshored suppliers
and developed world customers cost-free. Companies must factor in the rising cost

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