The area of global outsourcing has taken on many dynamic dimensions during 2010.  Many firms are getting more sophisticated in balancing the various risk-reward trade-offs. On the customer demand side, there are needs for market access to new high growth emerging markets, but at the same time there are increasing concerns relative to intellectual property protections and different business norms.  On the supply side, needs for lowest cost sourcing and production need to be balanced with agility, inventory investment and overall landed cost analysis.  Of late, I’m hearing more relative to firms re-visiting outsourcing vs. near-shoring strategies.

An important indicator on the importance for balancing came from General Electric, who recently announced that is was investing $432 million in four U.S. centers of product innovation and manufacturing of appliances.  According to an article appearing in the Financial Times (preview account required), GE has determined that a combination of U.S. production quality, the ability to market as ‘made in the U.S.’, and rising transportation and currency cost concerns have motivated this decision. A combination of local governmental incentives also helped, and GE was able to negotiate $78 million in tax incentives.  Make no mistake, job growth accelerators are an important motivator these days.

GE’s appliance groups have indicated that they plan to invest $1 billion in the next generation of products within the U.S. over the next four years, a shift from a previous non-U.S. sourcing strategy.  GE CEO Jeff Immelt is quoted that he can’t find the pennies that might have been saved from previous manufacturing sourcing decisions related to China and Mexico.

The FT article notes that GE is not alone.  Caterpillar and Wham-O were noted as having announced recent U.S. sourcing shifts.

In our view, there were perhaps other, more politically-oriented factors.  Mr. Immelt has not been shy in sharing his opinions on protected foreign markets, especially China.  GE has had some setbacks in gaining broader access to China’s markets, whereas competitor Siemens has been more aggressive.  Last June, Supply Chain Matters commented on Mr. Immelt’s interview with Charlie Rose. Immelt clearly stated that the U.S. needs to refocus its economy on manufacturing and exports, and admitted that U.S. companies may have outsourced too much, and turned over too many technological processes.

GE’s moves are an important indicator that the sands continue to shift when it comes to global sourcing strategies. While this sourcing shift involves a singular business, it is nonetheless an important shift. We also commend Mr. Immelt for following-through on his principles and beliefs.

Bob Ferrari