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July 29, 2008

Return sourcing

One of the biggest economic changes of the past decade has been outsourcing. This is where companies move operations and jobs out of the U.S. to countries where business costs are much lower. Now, with gas prices so high and the high cost of shipping, there's talk that some of these companies and jobs might come back. How likely is this? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we are actually seeing some promising signs. For example, if you look at steel - the steel industry - U.S. steel production is way up, and imports of steel from China are way down. But I think economists say although there are positive inklings that some of this return sourcing might happen that we don't want to get real excited because there are a number of things that could slow it down. For example, you just don't pick up a factory, for example, in China, and move it to the U.S. It is very expensive to do that. Also, you are not talking about just a factory, you are talking about what economists call whole supply chain - all the other companies that are related to that factory. And again, you don't just pick up that entire chain and move it from one country to another. Thirdly, China, which of course is one of the main countries as a source for outsourcing, is partially countering higher fuel costs with higher labor productivity. So I think the bottom line here is, perhaps, what higher fuel costs might do - rather than causing all these companies that went overseas to come back - it might stem the tide of more of them moving out of the U.S. to other countries."

Posted by Dave at July 29, 2008 08:00 AM