Offshore trends complex: report

'Next-shoring' seen as a challenge for labor markets across the globe

China is advantageously placed to thrive in an increasingly fluid manufacturing space as both a producer and a market for products and services, the lead co-author of a new report by the McKinsey & Co consulting firm said.

"China is well positioned to move from being only a source of low cost labor to potentially a good place to be if you want to access the Chinese demand," Katy George, a director in New York-based McKinsey's New Jersey office, told China Daily.

Like other countries, it will have to learn to operate in a manufacturing environment where the priority will be making the best location decisions, building supplier ecosystems and developing skilled managers. This action is known as "next-shoring" because it focuses on what a complicated future might bring rather than on two better known phenomena - "off-shoring - the handing off of manufacturing to developing nations with lower-wage workers - or to "reshoring" - the return of manufacturing to developed markets as wages rise in emerging ones.

The McKinsey report, called Next-shoring: a CEO's guide, finds that manufacturers need to become more nimble and adaptable to meet emerging markets' surging demand for products and services - expected to jump from 40 percent of overall global demand in 2008 to an estimated 66 percent by 2025.

Meanwhile, the companies also face increased expected volatility in weather events, commodity price fluctuations, financial markets and government stability.

"Companies have to become more agile and they also have to recognize some of these broader global forces that are changing how they might think about how they make things and where they make them," George said.

The redrawing of the global business landscape will "place a premium on manufacturing talent, creating a range of regional challenges", according to the report. In Europe and the US, it said, educational institutions are failing to produce workers with the technical skills advanced manufacturers need.

In developing economies such as China, "millions of lower-cost production associates who are well adapted to routine manufacturing can find it difficult to climb to the next level". Line supervisors, often newly out of regional universities, "struggle to manage baseline operations and to coordinate teams", according to the report.

Organizations, it said, will need to invest more in formal training and on-the-job coaching to bridge the gaps. "They must also cast a wider net, supporting local community colleges and technical institutes to shape curricula and gain access to new talent streams," according to the report.

Managers will "need to become both better at running a tight operational ship and more versatile", the report said. They should "be able to grasp the productivity potential of a range of new technologies and have enough ground-level knowledge of local markets to influence product strategies and investment trade-offs", the report said. The ability to build external relationships with suppliers, education partners and local government officials who can influence the development of vibrant, sophisticated supply ecosystems "will also be a source of competitive advantage", according to the report.

"In the world we're entering, the question won't be whether to produce in one market for another but how to tailor product strategies for each and how to match local needs with the latest veins of manufacturing know-how and digital expertise," the report said.

George said the report's conclusion is positive because it finds "this is not a zero-sum game".

michaelbarris@chinadailyusa.com