Reshoring: Why HR must deal with increased mobilisation
Increased globalisation has undoubtedly benefited European businesses, especially when it comes to finding and hiring new employees.
It is now much easier for companies to attract the very best talent from around the world and many firms are expanding their reach by opening bases on other continents. In the 1970s, a lot of European businesses - particularly in the manufacturing sector - moved large parts of their operations to Asia.
This trend gathered pace throughout the 1980s, 1990s and early 2000s, as companies looked for ways to significantly reduce costs. Inevitably, this had a major impact on the labour market, as job candidates had to compete with workers in other nations when applying for roles. The services offered by international consultants such as Michael Bailey Associates also became extremely valuable, as employers required help to bring in the very best managers and contractors for projects all over the world.
A new trend emerges
While European businesses are still open to the idea of shifting their operations to Asia in order to save money, there has been a distinctive shift in attitudes in the past few years.
A growing number of firms that had previously relocated their main production facilities and customer service centres to China, India and other Asian countries are now bringing them back to their native land. This process is widely referred to as "reshoring" and was one of the most interesting business trends of 2013.
According to a survey by the UK-based Manufacturing Advisory Service, companies cite three main reasons for reshoring:
- Rising costs overseas
- Improving the quality of goods/services
- Concerns over lead times
The Chinese yuan has strengthened considerably against the euro in recent years and the financial savings that businesses had been making by outsourcing their production facilities to the Asian country have eroded. It makes little sense for firms to continue producing components in Beijing or Shanghai and then pay high shipping fees to transport them back to Europe if they can produce the same items for a similar cost at home.
Aside from the three factors already mentioned, there are other reasons behind the ongoing reshoring trend. One important consideration is brand identity. German car makers, for example, are renowned all around the world for their meticulous manufacturing processes and attention to detail.
Brands such as BMW, Mercedes and Audi have built up a very positive reputation over the years and there is a lot of value in the "Made in Germany" tag. By shifting parts of their operations overseas, companies that are known for the quality of their production methods risk diluting the strength of their brand.
A growing number of US-based companies are joining their European counterparts in bringing production back from the East. In an interview with Design Week in February 2014, Patrick Van den Bossche, a Partner of American Operations at management consulting firm AT Kearney, explained why more North American businesses are reshoring.
"There are many reasons that manufacturing was hard in China, and that caught executives by surprise," he was quoted as saying.
"Managing a vast supply chain that starts here with innovation, goes to China, and then comes back adds complexity and adds inventory. You have to add more inventory because of the time it takes to move goods across the ocean."
How does this affect HR departments?
This kind of upheaval can present HR specialists with new challenges to overcome. Having spent years developing an infrastructure on the other side of the world, European firms must now make enough space at their existing facilities in their homeland to accommodate the extra production.
Relocating a factory or call centre can be difficult. With order books continuing to fill much more quickly as the global economy recovers, companies cannot afford to encounter downtime when they move their operations from one country to another.
This is why experienced project managers who have a solid track record on an international scale are so valuable. They can oversee the relocation process, ensuring new workers are ready to make an instant impact when production eventually resumes and that everything continues to run smoothly during the transitional period. While these contractors generally demand high fees, businesses will ultimately save huge amounts of money in the long run by way of minimised downtime.
Is outsourcing a thing of the past?
Although experts predict the process of reshoring will become increasingly popular in 2014, it is wrong to suggest that outsourcing is a dying trend.
While it is no longer cost effective to produce goods in Asia and transport them back to Western Europe, companies have started to identify other regions that have the potential to be strong outsourcing hubs. According to the Central and Eastern European Outsourcing Association (CEEOA), Eastern Europe is proving to be an increasingly popular place for IT businesses to operate.
It referenced figures supplied by the International Data Corporation, which showed that as many as 37 per cent of North American companies had invested in permanent offshore software development in Central and Eastern Europe in 2010. The CEEOA suggested Eastern Europe is an attractive option for American and Western European IT companies because the cultural differences are not as vast as they might be if they outsourced to the Far East. Western European firms also like the minimal disruption caused by time zone differences.
While this demonstrates the point that outsourcing and businesses shifting operations to different parts of the world in order to save money is still commonplace, it does not alter the challenges faced by HR departments. Whether a company is bringing production back from China or moving its IT department to Ukraine, HR specialists will still be required to find talented and experienced managers to oversee the projects.
In an article for HR Magazine in January 2014, Lynda Gratton, Professor of Management Practice at London Business School, underlined the point that globalisation has presented employers with new opportunities. She stated that firms now have access to a worldwide talent pool and organisations find it easier to hire contractors when they need them. This is particularly important in technical sectors such as IT and engineering, as skills gaps have formed in these professions across parts of Europe in recent years.
"For organisations with a globally dispersed workforce, homogenous teams of similar individuals are becoming a thing of the past, replaced by diverse and often remote teams that assemble for a single project before dispersing again," Ms Gratton wrote in her guest column for the publication.
"This leaves companies with the task of considering how they manage and measure these workers."
As well as identifying new talent and putting together a strong team capable of completing a specific project on time and within budget, Ms Gratton believes companies must find new ways to motivate and engage workers. Methods that were effective a few years ago - when most employees were office-based - will not work in 2014, as highly-skilled contractors from around the world have very different needs.
"The challenge encountered in trying to manage, measure and engage people within these new structures using yesterday's worn-out processes have led to the abandonment of many a workplace initiative and to many mission-critical projects not delivering the expected outcome," Ms Gratton added.
Conclusion - Why HR professionals must adapt
Globalisation is not a new phenomenon, but it is starting to have a much bigger impact on the way HR departments operate.
The main challenges that HR specialists are likely to encounter in 2014 include:
- The growth of reshoring
- Company executives exploring new outsourcing opportunities
- Finding talented staff who are happy to work in different parts of the world
- Maintaining high levels of engagement across an increasingly diverse workforce
- Competing for talent with employers in other countries
Reshoring and outsourcing activity is predicted to increase in 2014 and companies will become even more reliant on specialist consultancies when searching for talented people to oversee the movement of manufacturing facilities, call centres and other business operations around the world. Modern technology has helped to blur the boundaries between different countries and cultures, while the growing availability of affordable air travel has enabled workers to move around the planet more freely.
While globalisation/mobilisation has forced businesses to adapt, it has also brought numerous benefits. Localised skills shortages are less problematic, European firms can hire managers from Asia who will have fresh ideas and can offer a different perspective on how projects should be completed and companies are finding it easier to break into lucrative new markets.
There is no doubt that globalised workforces are the future. The big question is; can European employers make the most of this change?