Why Reshore Manufacturing? It’s the Only Way to Avoid Defective Pirated Parts

There are two basic arguments against bringing manufacturing that was transferred overseas (offshored) back to America (reshoring):

1. It’s too costly

2. The supply chain is now in China/Asia and it’s not possible to source the parts needed to bring manufacturing back to America.

I beg to differ on both counts: nothing is more costly and destructive to profits than defective, pirated parts made overseas. Counterfeits made to look like legitimate parts are highly profitable to the counterfeiter and immensely damaging and dangerous to the manufacturer and end-user.

In a global economy burdened with massive overcapacity, the only way to maintain profit margins is to lower costs by cutting corners: in effect, defrauding customers by delivering deceptively reduced quantity and quality, and/or defrauding the end-producer by shipping low-cost counterfeit parts that mimic legitimate products.

Gordon Long and I discussed this systemic reality in Bankers Crippling the Global Supply Chain (34:50).

Bloomberg/Businessweek recently outlined the scope of fake parts and the impossibility of rooting them out of global supply chains: The Dangerous Game Behind Fake Ball Bearings:

Everything from shoe polish to medication to car parts is pirated. Estimates of the scale of the problem range from $461 billion — 2.5 percent of global trade — the Organization for Economic Co-Operation and Development says, to some $1.8 trillion, according to calculations last year by the International Chamber of Commerce. And while makers of luxury goods — among the most prominent counterfeited products — lose profit from the trade, there’s little risk to consumers. In the case of more mundane stuff like bearings, forgeries can be dangerous as well as costly.

“Many people believe piracy is limited to handbags and other similar products, but the more serious issue is industrial companies,” said Ann-Charlotte Soederlund, co-founder of the Global Anti-Counterfeiting Network, an umbrella organization of fake-fighters around the world. “The effects can be immensely larger than the consequence of a fake handbag.”

Knock-off building materials have been shown to catch fire. Counterfeit electronics have caused military equipment to fail. And SKF says a sham bearing in a swimming pool pump sparked a fire that burnt a house to the ground.

Forgeries of its products typically originate in China, often from factories where legitimate competitors make their products, Aastroem said. Workshops there buy unmarked bearings, stamp them with the SKF brand and put them in packaging designed to look genuine, the company says. From China, the bearings are shipped worldwide to customers who often believe they are buying legitimate parts.

How expensive are defective products returned as a result of counterfeit parts failing? How costly is the damage done to brands that depend on quality for their pricing power? How expensive is it to field hundreds of quality-control personnel and investigators, all of whose efforts are the equivalent of shoveling sand against the tide?

Gordon and I discussed the practically endless list of costly products that have to be replaced or repaired (often more than once) due to defective/ failed parts.

What has been commoditified in the global supply chain is not quality or reliability– what’s been commoditified is pirated, defective parts that look exactly like legitimate parts.

There is a solution that’s a lot cheaper than shoveling sand against the counterfeit tide: bring the entire supply chain back to America where production can be verified and the parts tested and ID’d/ labeled with technologies that cannot be counterfeited as easily as the parts.

Come home, America, is not just a political slogan: it’s simply good business.

If you want to lose your brand, your pricing power and your customers, by all means, rely on a global supply chain filled with defective parts that cannot possibly be detected. Reshoring the entire supply chain so it can be trusted is the low-cost solution once you add up the total lifecycle costs of a hopelessly counterfeit global supply chain.

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  • Tom M Eagle

    Great article.Beside having bearing counterfeiting, there is a lot of counterfeiting in grade eight bolts out there too.

  • diogenes

    I had a bolt snap like a pistolshot on a bike a few years ago. I was lucky to escape serious injury. The mechanic laughed at my pun when I said “chinese steel” but I didn’t think it was so funny.

    And I don’t think its funny that the predators of Wall Street have gutted America’s industrial base to stuff their own greed and bribed Congress to let them do it and even pay them tax benefits for their treason. Which is what it is. Treason.

    It’s tiresome that Smith never gets to the root causes of the issues he raises. He avoids them like poison oak and skates on the goody-goody surface. Why is that?

  • diogenes

    I want to call the attention of readers readers interested in substantive penetrating discussion, rather than superficial driveling, to these three articles:

    Michael Hudson, “Rentier Capitalism ? Veblen in the 21st century”

    http://michael-hudson.com/2016/10/rentier-capitalism-veblen-in-the-21st-century/

    Michael Hudson, “The Social Economics of Thorstein Veblen,” Economics History Association, October 24, 2012, review of David Reisman, The Social Economics of Thorstein Veblen (Cheltenham, Edward Elgar, 2012)

    http://michael-hudson.com/2012/10/the-social-economics-of-thorstein-veblen/

    Veblen is the most important and insightful economist America has produced, and he is KEY to American Progressive economics. Hudson is our most valuable living economist and a tremendous cultural resource.

    *

    Matt Stoller, “How Democrats Killed their Populist Soul: In the 1970s, a
    new wave of post-Watergate liberals stopped fighting monopoly power. The
    result is an increawsingly dangerous political system,” Atlantic October 24,
    2016

    http://www.theatlnatic.com/politics/archive/2016/10/10/how-the-democrats-killed-the
    ir-populist-soul/504710/

    Stoller looks as the evolution of neoliberal political economy and contrasting liberatarian
    neoconservative political economic reality from 1974-2016, starting from the
    removal of Wright Patman from chair of House Banking Comm. in 1975 and

    looking at evolution and economy from Brandeisian-Populist perspective

    (Patman was a Brandeis protegé per this author) — a perspective essentially informed by and articulated by Veblen (not that Stoller knows it). He accepts the claims of New
    Deal economic policy & legislation as if they represented the reality rather than aspiration or propaganda but this is, as an account of surface politics, useful. It ignores evolution of deep state but is comparatively plainspoken (if carefully circumspect) about the reality of predatory economic concentration. From both analyses the same hinge-point emerges: 1975.

  • Mar 4, 2014 Fair Trade, not “Free” Trade

    “Free” Trade is government policy and NOT a free market. Free Trade agreements are designed by large multi-national corporate entities to favor them over the small business owner and the local sovereignty of the people. The Trans-Pacific Partnership ( TPP ) and NAFTA are examples of how the World Trade Organization is slowly taking control over all trade and is the 3rd pillar supporting a New World Order government.

    https://youtu.be/eOWNB3tgk8U

  • “Who controls the issuance of money controls the government!” Nathan Meyer Rothschild

    Which Corporations Control the World?

    A surprisingly small number of corporations control massive global market shares. How many of the brands below do you use?

    http://www.informationclearinghouse.info/article44864.htm

  • How is this for a big dose of irony? NOV 24, 2016 Abe’s ‘made-in-Japan’ gift for Trump produced by China-owned firm

    But a somewhat awkward fact for the Japanese government was pointed out Wednesday by the state-run People’s Daily in China: Honma Golf Co., which went bankrupt in 2005, is now owned by a Chinese company.

    http://www.japantimes.co.jp/news/2016/11/24/national/abes-made-japan-gift-trump-produced-china-owned-firm/