t is a mother’s favorite hypothetical question: If your friends jumped off a bridge, would you do it, too? In the manufacturing world, the bridge represents the decision to send production overseas — and many U.S. companies are taking the plunge.
The easy availability of cheap labor in China, India and other Asian nations has prompted American companies to begin outsourcing projects and divisions. Segments such as programming, research and development, and customer service, once kept in-house or turned over to other American companies, now are handled by workers in other countries.
Such outsourcing forces competitors to follow suit, leaving U.S. laborers behind. “From a personal level, it’s obviously a challenge whenever someone’s out of work,” says Michael Corbett, president of Michael F. Corbett & Associates in La Grangeville, N.Y., and author of Outsourcing Revolution: Why It Makes Sense and How to Do It Right.
“But from an overall economic standpoint, it’s a natural part of growth,” Corbett says. “It makes products more affordable and accessible. It also makes companies more profitable, which will allow them to grow and create new jobs.”
The reality is that jobs across many industries have headed overseas and the same thing may happen in the pool and spa business. Though this would provide builders and retailers with lower-priced heaters, chemicals and spa parts, a potential decline in white-collar, skilled labor may eliminate a portion of the pool-buying clientele.
But everyone’s doing it
Many companies have taken a huge hit in recent months due to the rising costs of nonwage compensation such as health care. As a result, 31 percent of manufacturers are outsourcing some level of their production to lower-cost countries, according to this year’s National Association of Manufacturers survey. Another 12 percent are offshoring other business functions.
“The threat of outsourcing is not a myth,” says Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, an Arlington, Va.-based trade association representing roughly 500 multinational corporations. “Each company wants to lower its costs and prices to consumers in order to compete. As an individual company, you either meet the competition or go out of business.”
Hayward Pool Products Inc., for example, set up vendors in China after seeing the appearance of offshore products that mimicked its designs. “We were concerned about how it would affect our reputation in the industry,” says Paul Adelberg, vice president of lean technology at the Elizabeth, N.J.-based manufacturer.
“In addition, we were finding that the pricing of the products coming in were more than we could handle,” Adelberg says. He notes that less than 5 percent of the company’s component products such as fittings and jets are currently manufactured offshore.
Experts estimate that manufacturers who relocate abroad see 45- to 50 percent in savings. Most developers in the pool and spa industry can’t argue with these numbers. “This industry is no different than any other; it is driven by its competitive environment,” says Todd Cramer, director of sales operations at Petaluma, Calif.-based Jandy. “Nearly every manufacturing company is under pressure to reduce costs.”
Will pool customers disappear?
Many supporters of outsourcing say concerns are unwarranted. They compare today’s economy with the spread of high technology in the early 1990s. At that time, experts speculated that the clerical industry would falter and companies would become impersonal.
Instead, the marketplace created a variety of new jobs for technologically savvy individuals. Companies were able to deliver lower prices, better service and greater value by implementing technology. The reality, experts say, is that offshore outsourcing will create a new breed of jobs for individuals with emerging skills. In addition, foreign companies who want to be closer to their American customers will open U.S. offices much the way Mercedes and Samsung have over the past few decades.
Others aren’t so sure. Some think the departure of highly skilled individuals might undermine the U.S. customer base. “Some of our customers with discretionary income may not have that any longer, so it’s the loss of a high-end customer and the loss of their ability to buy the same level of pool,” says Thomas Brown, vice president of sales and marketing at the Aquatech Society in Huntington Beach, Calif.
“Rather than an inground pool, for example, they might get an aboveground pool,” he adds. “We saw this in the ’70s with manufacturing jobs. But with this one, where we take the skilled talent overseas, I don’t know what the effects will be.”
Experts estimate that of the 2.3 million jobs that have vanished since January 2001, approximately 10 percent have moved abroad. By 2015, more than 3.3 million are expected to leave the country, according to a report by McKinsey Consulting, a New York-based subsidiary of McKinsey & Co.
That exodus of jobs may negate all the benefits of outsourcing. “There are only three [major] manufacturers now — Hayward, Pentair and Water Pik,” says Rich Tonti, director of sales and marketing for Curcie Pools & Landscape in Anaheim, Calif. “If one of them goes and starts to outsource everything, they’ll cut their prices and the others would have to do that as well to compete.
“I’m worried about quality and, most importantly, about customer service,” he adds. “The more distant you are from your own product and manufacturing, the harder it is to have control over it.”
