The goal of many business owners is to maximize profits which can be done by increasing prices or decreasing costs. Many companies have tried to do both but concentrate on minimizing prices. First they reduce staff levels or they may automate and change the manufacturing process to achieve efficiencies. Others have outsourced manufacturing to foreign countries.
On April 29, I wrote a blog about manufacturing in China – is there an advantage or it is becoming too expensive and in a few years, manufacturing will be returning back to North America. I read in a local newspaper yesterday that a Canadian company was moving their manufacturing plant back to Canada because China was becoming too expensive. My predictions were correct but the timing was much faster than I originally thought.
The stock markets and the financial markets believe that outsourcing to a foreign country is far cheaper than producing in North America. It is for some products but those which are very automated processes, there is not a lot of labor costs in the cost of the goods sold. Businesses go to China and the Far East to save on labor costs. As processes are becoming more automated, the savings that businesses incur keep getting smaller. The costs of transportation, the cost of having to have your inventory in a container on the water for four weeks means that your working capital is tied up, you cannot go just in time delivery easily because you have to fill up an entire container.
