Analysis and Commentary

The cost of offshoring now being paid – by John Broadbent

Analysis and Commentary

By John Broadbent

Do you remember when some Australian manufacturers off-shored their production to lower-cost labour countries, mostly in SE Asia?

In most cases, the labour issue was because the equipment on which they worked was ancient history, a relic, fully-depreciated and being sweated so much, it was dripping.

Rather than use the depreciation tax incentive to buy new kit when the old had run its race, instead the asset laboured on, sometimes for decades.

So when SE Asia (SEA) raised its head as an alternate place to send inefficient equipment, and mask this with cheaper labour, life was good…for a while…until SEA labour rates started to climb.

Then came Covid-19, which ruptured many supply chains.

Those that exported their equipment never considered what would happen if international labour rates climbed, nor considered that it as an irrevocable step: once exported, it was a one-way street.

Some manufacturers are re-shoring, but those that are, are bringing back production, not the kit. Why?

Because the kit is now even older and more inefficient than when it was sent overseas!

For those who can no longer re-shore production because they don’t have the equipment to do it, they’re now faced with a much larger capital investment than when they made the decision to move overseas.

They might have made a handsome profit in the meantime, but did they squirrel some away to reinvest and eventually bring production back home?

One-off decisions like offshoring can seem good at the time, but in the end, The Piper always has to be paid.

John Broadbent is an Industry 4.0 specialist, educator, trainer, workshop facilitator and advisory group member, with over 45 years in the Australian manufacturing sector. His reputation for demystifying all things Industry 4.0 and his educational video series on LinkedIn, have earned him an engaged following with local and international manufacturers, producers, industry bodies, best-practice networks and educational institutions seeking his experience and advice.

Picture: John Broadbent

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